Madeleine Wackernagel : Taking Stock
Anglo American interims are not the most exciting event on the business calendar but on Tuesday this week it was standing room only. The markets had been abuzz with rumours, but even the seemingly wild speculation didn’t come close to the real thing.
In one elegant move, Anglo rid itself of the JCI embarrassment, bailed out Mzi Khumalo with the Lonrho share swap, and created the world’s biggest – by production and resources — gold company, with a market capitalisation of R20-billion.
The timing was propitious. With the gold price crisis showing no signs of letting up, one centralised structure has a better chance of survival than many disparate operations. Anglogold will have the management and financial resources to tough out the battle to cut costs, although it may not have much time: with gold trading in the region of $295/oz, the window of opportunity is closing fast. The company is looking to cut its production costs from the current $280/oz to $255/oz after the incorporation of the JCI mines.
But in the general excitement over Anglogold, the corporation’s other big move – streamlining its operations to bring it more into line with international business practice – was almost overlooked.
While not unbundling in the strictest sense, Anglo American is devolving into separate business units, with independent management, “to create a structure that meets the needs and wishes of today’s investors”, in the words of Julian Ogilvie Thompson.
That statement marked a watershed for the behemoth of South African business. The influence of Anglo American has long been felt in virtually every boardroom, a hangover from the old days of protectionism and croneyism. The complex web of cross- shareholdings extended to more than 50% of the companies listed on the Johannesburg Stock Exchange until 1988. It is now closer to 10%.
But the perception remains that Anglo still pulls numerous strings, not least at JCI. Otherwise, why would it have agreed to the Lonrho share-swap deal? Having purchased the shares at 180p each, then settled for a December option with JCI at 155p, it has now effectively sold them for 105p – a considerable loss by any measure.
In short, the deal is a bail-out. Khumalo approached the corporation on Monday with the proposal; time and money were running out fast. And as the gold price continued to plummet, so did any hope of a recovery in the JCI share price, then hovering at around R16 – against the R54 paid by Khumalo and his partners.
Despite losing its flagship gold mines, JCI is R3-billion better off as a result and Khumalo can sleep easier. But there are plenty of questions.
Not that long ago Brett Kebble was boasting of the company’s potential as a world leader in gold production; as head of its gold division, he should know. Now there is no more gold division, only a 34% stake in Randfontein Estates and an interest in the Sukhoi Log gold prospect in Siberia.
The rest of the group is a ragbag of holdings in coal, platinum, ferrochrome and iron ore, and via Lonrho, an indirect stake in Ashanti. Not quite the gold-focused, diverse commodities group we were promised just a few months ago.
Ogilvie Thompson was unrepentant: Anglo, he said, had no regrets. He was sure that “JCI has a sensible plan”.
According to Khumalo, that involves Lonrho, but with only 27%, he has no hope of gaining management control – Tiny Rowland, the biggest individual shareholder, will doubtless do his best to see to that.
The merger of the companies’ coal interests, Duiker and Tavistock, is still on track and there are plenty of potential “synergies that can be of benefit to both sets of shareholders”. Not many analysts are convinced; and judging by the reversal in the share price gain that followed the initial announcement, neither is the market. Khumalo must rue the day he ever set foot in Anglo’s imposing headquarters.