Anglo’s Wanblad won’t go easily

ANALYSIS

In 2004, then president Thabo Mbek publicly scolded Tony Trahar, Anglo American’s chief executive at the time, for his sentiments about the political risk associated with South Africa.

In an interview with the Financial Times the month prior, Trahar had suggested that although this risk had diminished, it had not disappeared. He also criticised the government’s response to the HIV epidemic — no doubt annoying the president even more.

“Is this the risk that persuaded Anglo American that it should list and re-domicile in London, while speaking to us only about the size of capital markets?” Mbeki wrote in his weekly letterr to the nation.

Trahar, who was criticised for misreading the commodity cycle, retired in 2007. By then there was already speculation that Anglo would become the target of one of its competitors, which were flush with cash thanks to the China-induced boom. Trahar’s successor, Cynthia Carroll, was left with the unenviable task of batting back a takeover bid by mining freshman Xstrata.

The narrative about South Africa’s political risk was recently revived thanks to another unwelcome proposal to acquire Anglo, this time by Australian giant BHP Billiton.

Pressure for Anglo to fend off predators now falls on Duncan Wanblad — the mining company’s first South African chief executive since Trahar — who will have to make good on his plans to reshape its underperforming portfolio.

BHP’s initial offer, which Anglo’s board unanimously dismissed as opportunistic, would have required the company to complete two separate demergers of its entire shareholdings in Anglo American Platinum and Kumba Iron Ore, effectively eliminating its exposure to South Africa.

Ahead of Anglo’s decision to reject the bid, Mineral Resources and Energy Minister Gwede Mantashe signalled his displeasure with BHP. Then, on Monday, President Cyril Ramaphosa hit out at analysts suggesting that BHP’s proposal was a vote against South Africa’s investment prospects. The government is among Anglo’s largest shareholders.

Veteran mining analyst Peter Major said the takeover would be bad news for the 107-year-old group’s long-term strategic shareholders. “That includes the government and that includes South Africa,” he said, adding that the state’s hostility is partly to blame for the mining company’s diminished position.

“That caused them to go offshore; to severely reduce their investment in South Africa in many ways. It caused them to spread out their money and to unbundle. So Anglo doesn’t have anywhere the size, diversity and critical mass in South Africa it used to. The government has been so hard on them and their subsidiaries nonstop for three decades now,” Major said.

“They have put their domicile and all new investments offshore. So now they are an offshore company that is susceptible to the outside world. And it’s a tough world out there.”

Tough indeed. 

Last December, the company suffered its worst one-day share price fall since 2008 amid pressure from its platinum group metals (PGM), iron ore, diamonds, as well as some of its copper assets. Sharply lower commodity prices, as well as logistical problems in South Africa, Chile and Peru, all weighed on Anglo’s share price.

With sharks probably still circling, Wanblad is mandated by shareholders to get them the best deal possible. 

“He will have to make a good presentation to shareholders and say, ‘This is why you shouldn’t sell,’ which is likely. Or he’ll say, ‘Guys, this will be the end of Anglo, but here’s why you should sell,’ which is unlikely. One or the other,” Major noted.

During an investor update last December, Wanblad promised to unlock value by streamlining the business. 

Anglo American’s management is undertaking a strategic review of four of its assets: diamond miner De Beers, nickel, metallurgical coal and Anglo American Platinum.

Wanblad recounted Anglo’s travails during its annual general meeting for its London shareholders on Tuesday.

“When we look back at 2023 as a whole,” Wanblad said, “the macro picture across geopolitics and the global economy was certainly volatile, with prolonged inflationary pressure that continued to impact costs across our industry.” 

He added: “While such years are to be expected in a cyclical business, and we run our balance sheet to absorb these periods, we are taking appropriate action to ensure robust ongoing cash generation and balance sheet strength.”

Anchor Capital investment analyst Seleho Tsatsi said: “I think Anglo itself had recognised that it needed to review its assets. Whether this bid and interest put extra pressure on them — or will lead to them putting more focus on that review process — remains to be seen.”

On Wanblad’s tenure, which started only two years ago, Tsatsi noted that the fates of mining chief executives tend to be tied to commodity price movements.

“One CEO could do everything right and still preside over a company during a downturn. Whereas someone could make strategically less smart moves, but because they are at the helm during an up cycle, things look a lot better,” he said.

“For Duncan [Wanblad] it feels almost a bit too early to judge … It will be interesting to see what the resulting actions from the strategic review are. That will give a sense of where he is looking to take Anglo, but obviously the BHP bid makes things a little difficult.”

Major said that Wanblad, who has worked in the Anglo American stable for three decades, has the benefit of history and experience there. “When they had Cynthia Carroll there, she didn’t have either. Duncan does.”

Whereas Trahar’s time at Anglo’s helm was marked by his cautiousness — something that saw him fall out of favour with some shareholders — Carroll had to be more assertive.

In the process, she was seen as having made a number of missteps, including the costly acquisition of Brazil’s Minas-Rio mine shortly before the 2008 global financial crisis. Carroll, Anglo’s first non-South African boss, was also criticised for not spinning off the company’s loss-making platinum business. 

Anglo announced Carrol’s resignation in October 2012. At the time, then mineral resources minister Susan Shabangu expressed her hope that a local person would return to Anglo’s helm. 

Australian-born Mark Cutifani ran the business until Wanblad took over in 2022.

Asked what might happen to Wanblad if Anglo ends up bending to a takeover, Major said: “The first instinct is, ‘This is my mothership, I want to protect it. I’m in charge of this mothership. I’ll never get a better job.’ He is in charge of Anglo American. Billiton can’t make him a better offer than that.

“Duncan isn’t going to make it easy for BHP,” he later added. “It’s his and many of his team’s lives.”

Meanwhile, according to Tsatsi, there aren’t many global mining companies that have the balance sheets needed to enter a bidding war with BHP. Rio Tinto and Glencore have both been touted as possible bidders.