[miningmx.com] — IN an effort to shake out all possible explanations for its share price under-performance, Anglo American recently considered unbundling its 79% stake in listed subsidiary, Anglo Platinum. The board rejected the notion.
According to analysts, it would have been logical for Anglo to consider a radical restructuring. “Anglo would have been stupid not to think about the unbundling of Anglo Platinum as the sluggishness in the share price could only be related to something structural,’ he said.
That’s if you accept Anglo has a better suite of assets than Xstrata, the UK-listed group that in 2009 made a nil-premium merger offer for Anglo – a development that led Anglo to refit its board, roll out cost savings, and give impetus to its capital project pipeline.
Notwithstanding these efforts, Anglo’s share price was level pegging with Xstrata’s, right up until the beginning in August when, amid industrial production declines and renewed Eurozone debt worries, Xstrata dipped and Anglo’s share price held up better. Until that point, however, Anglo’s inability to inject life into its share price was a concern.
For months, analysts have been backing Anglo as a share worth having compared to its peer group, BHP Billiton, Rio Tinto, Xstrata and Vale. Even now, Anglo’s has supporters.
The latest feeling is that given the fact Anglo did not turn to the capital markets in the 2008 financial crisis, it has been able to execute a good pipeline of projects – Los Broncos (copper); Barro Alto (nickel); Minas Rios (iron ore) – without undue balance sheet stress.
So with volumetric growth on several fronts, the company will be cash generative, especially in the next two financial years.
Analysts are looking to the possibility Anglo will serve up an agreeable capital management programme either in the form of share buy-backs or special dividends approaching $10bn or so.
Anglo Platinum
The subject of the unbundling of Anglo Platinum may yet return to Anglo American board packs in the future. Viewed from this distance, however, it is something of a moot point.
Anglo Platinum really is a bit of a dreary business, notwithstanding the excellent work of CEO Neville Nicolau, formerly of AngloGold Ashanti who had his doubters on taking up the platinum company job. Anglo Platinum is high cost, consumes capital greedily, and seems bedevilled by growth concerns. It might as well get said: the three million oz/year target is a pipe dream, just like Lonmin’s one million ounce/year production target.
Yet dispensing Anglo Platinum shares to Anglo American shareholders would almost certainly create a quite enormous overhang in the platinum company shares as many Anglo investors aren’t mandated to hold South African listed firms or precious metals, for instance.
But in the longer term, stripping out $19bn worth of Anglo’s $46bn market cap, while it may give Anglo a rerating (50% some say), would also make the company highly vulnerable to a takeover. Remove Anglo Platinum from Anglo American and most of the South African exposure is removed. “The turkeys won’t vote for Christmas,’ says one analyst.
In its defence, Anglo Platinum is a differentiator in Anglo’s portfolio. There’s also a shift in perspective on nationalisation. “Is it the issue it once was a few months ago?’ one UK analyst asks. “The feeling is that the matter will get resolved by the ANC next year at its conference. Resource nationalism is here to stay, but nationalisation won’t get supported,’ he adds.
