THE proposed unbundling of Anglo American Platinum (Amplats) could result in a leaner, more cash generative company, but there could be an overhang in the platinum miner for the foreseeable future.
Amplats’ unbundling was proposed by Anglo American CEO Duncan Wanblad on Tuesday morning as part of a broad group restructuring in which the UK-listed firm would also sell or demerge De Beers and sell its metallurgical coal mines in Australia.
Wanblad said the restructuring was the result of a strategic review initiated earlier this year, and was not a direct response to two takeover proposals from BHP which also envisage Amplats’ unbundling, as well as Kumba Iron Ore. Anglo has 79% of Amplats’ shares and a 70% stake in Kumba.
Commenting in a note to clients on Tuesday, Nedbank Securities analyst Arnold van Graan said that although Anglo’s restructuring plan was similar to BHP’s, the simplification of its structure “would be at Anglo’s chosen time and tempo”.
“We believe this would be positive for Amplats – as this would give it more autonomy on its investment plans (use of its cash) and help reduce overhead costs. However, this would still create an overhang, which could weigh on Amplats’ valuation, in our view,” he said.
Shares in Amplats fell 8.6% by the close of trade on the JSE. Analysts said in response to BHP’s similar proposal that some Anglo shareholders would not be permitted to hold shares in Amplats as a standalone given its exposure to PGMs and South Africa.
“These developments come at a time when the PGM sector is struggling, Amplats is going through a restructuring on the back of lower PGM prices – and this adds more uncertainty and risk,” said Van Graan.
Over the long-term however Amplats would have more cash at its centre rather than paying it into the UK parent, greater control over its cost structure, and could give it more power over strategy.
This may even result in the sale of assets such as Amandelbult, said Van Graan.
Earlier today, Amplats said that Anglo’s restructuring proposal did not affect its own plans to improve the profitability of the business. Amplats said on February 19 that it was reviewing its operating base potentially affecting 3,700 fixed term employees as well as 620 contracting companies.
Amplats reported a 71% year-on-year fall in headline share earnings for the 12 months ended December to R53.30/share. In December, Amplats announced plans to save R10bn in annual costs of which R5bn were in operating costs.
