Anglo American Plans to Split Up Units to Fend Off BHP Bids -- At a Glance

By Christian Moess Laursen and Giulia Petroni

THE NEWS: U.K. mining giant Anglo American plans to exit its platinum-metals, diamond, steelmaking coal and nickel operations to focus its portfolio on copper, iron and crop nutrients as it seeks to fend off further bids from rivals.

The platinum unit, known as Amplats, is now set to be spun off amid weak prices and persistently higher inflationary costs that have crippled the sector. Keeping the unit would limit both the unit and the company's full value, Anglo said.

Anglo also plans to part ways with De Beers, its storied diamond unit, as the company is exploring options for either a sale or a demerger. Last month, The Wall Street Journal reported that the company held early conversations with potential buyers for the unit, which Anglo values at more than $7 billion.

For its nickel business, Anglo said it is looking at options for a divestment. Operations have been squeezed by crashing prices due to Indonesian supply flooding the market. Anglo's steelmaking coal assets will be divested, with proceeds used to reset the company's balance sheet. The mining giant said it is currently responding to strong buyer interest.

Meanwhile, the South African iron unit Kumba will remain in the portfolio, along with Anglo's prized copper operations and its crop-nutrients project, Woodsmith, although development of the latter will be slowed.

The restructuring--set to be completed by the end of next year--is expected to shave off $1.7 billion in costs, in addition to its annual target of $1 billion in cost savings, which Anglo said it remains on track to meet this year.

MARKET REACTION: Shares initially moved little in early trading, but fell more than 3.5% later in the day. At 1258 GMT, shares were down 2.8% at GBP26.32. BHP's shares in London have clawed back an initial fall of 0.7%, and now trade 2.8% higher at GBP23.45.

ANALYSTS' COMMENTS: AJ Bell analyst Russ Mould took the muted share reaction as a sign that the market had seen management drag its feet to streamline the business. "The plan… raises a troubling question for the incumbent management: why has it taken a takeover approach to prompt this radical action if it's the right strategy for the future?," Mould said.

Still, the restructuring should make Anglo more attractive to potential bidders as it would slim down and get rid of parts that players such as BHP wouldn't want, AJ Bell analyst Dan Coatsworth said in a market comment.

Meanwhile, RBC Capital Markets sees the shake-up potentially increasing Anglo's share value over time. The Canadian bank had already lifted its share-price target to GBP31.00 following the rebuffed takeover approach on Monday on the assumption that Anglo would be streamlining its operations similar to BHP. "Although the simplified structure announced today is different [than assumed] and would lead to a smaller multiple rerating than assumed in our base case forecasts, we still expect this to lead to a higher value than embedded in BHP's latest offer," analyst Marina Calero said in a note.

However, Anglo's restructuring plans might come too late to save the company from being bought by a competitor, according to SP Angel analysts, unless it can convince shareholders that an independent company offers them more than a sell out.

CONTEXT: The shake-up comes after Anglo on Monday rejected a sweetened takeover proposal from rival BHP that valued it at almost $43 billion. Anglo said again that BHP's bid significantly undervalues the company, even more so after the restructuring.

Australia's BHP--the world's largest miner by market cap--approached its rival last month with an all-stock offer contingent on Anglo spinning off its shareholdings in two South Africa-listed units, Anglo American Platinum and Kumba Iron Ore. The deal would have been the biggest in the mining sector in years.

The offer came after Anglo shares experienced a sharp decline, creating a value opportunity. The firm's market value shrank last year due to operational setbacks and downgraded production guidance.

Speculation that the British company could be a takeover target emerged late last year, after the miner cut its production guidance for coming years, shaking the market. The company cited operational issues at a key copper mine in Chile and persistent logistical woes at its iron-ore operations in South Africa. Meanwhile, slumping platinum-metals and diamond prices further added to its headwinds.

Since Chief Executive Duncan Wanblad took the reins in April 2022, Anglo's market capitalization has diminished to around $34 billion from around $72 billion. Its shares have declined roughly 41% in the same period.

BHP's initial offer came at a time when copper prices were up 15% in the year to date, boosted by expectations of tight global supplies and an optimistic demand outlook. Three-month copper is currently at $10,200.50 a metric ton. The prospect of shortages in copper concentrate is driving the rise, with the Cobre mine in Panama coming offline and producers in Latin America struggling to ramp up output.

According to market watchers, prices are set to rise sustainably, driven by the expansion of clean-energy technologies and anticipated looser monetary policy in the U.S. and Europe. According to financial-services group MUFG, the red metal is forecast to reach $12,000 a ton by the end of next year as scarcity pressures intensify.

WHAT'S NEXT: Anglo's nickel and coal assets are expected to attract bids from other diversified miners, according to Quilter Cheviot analyst Jamie Maddock. "Another global diversified miner who would find the nickel and coal assets appealing could be forced to make an offer or potentially lose out on the opportunity to bulk up in those areas," he said.

Meanwhile BHP now looks more than likely to return an increased or re-structured bid, Maddock added. Under U.K. takeover rules, BHP has until May 22 to make a formal offer for Anglo.

Either way, a takeover seems inevitable, whether it's this year or over the next few years once the breakup has completed, AJ Bell analyst Dan Coatsworth said. The company offers a ready-made portfolio of long-life copper and iron-ore assets, an easier way for a rival miner to bulk up on these important commodities than going through the motion of exploration and drilling, he said.

Write to Christian Moess Laursen at [e-mail] and Giulia Petroni at [e-mail]

(END) Dow Jones Newswires

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