Investor doubts persists about mining and resources group Anglo American, despite determined moves to streamline its operation since it relocated to London.
Anglo met its shareholders at its annual general meeting last Friday in London’s West End, its base since May 1999.
Yet after delivering what has been described as the best financial results for a diversified mining group last year, it still has to win over a sceptical business and investor community.
It has also had to fend off attacks at home and abroad, including accusations that it lacks patriotism and claims in the United States courts for reparations for apartheid victims.
A London-based mining analyst, whose company requires him to remain anonymous, has followed Anglo since before its move to the United Kingdom. He noted: “When Anglo came here, the market was sceptical.” He added that it was seen as a family business that was “shoddily” managed. Moreover, it had a complex crossholding with diamond giant De Beers and a clutter of only vaguely related assets.
The analyst noted that in the period since its relocation, the group “has strengthened its board, streamlined management and cut costs, sold off its non-core assets and modernised”.
Another professional observer in the City pointed to continuing market cynicism focused on the way the group is treated back home.
Commenting on the black economic empowerment process in the mining industry — the Minerals and Petroleum Resources Development Act, the mining charter and the Mineral and Petroleum Royalties Bill — he says: “First, [the government] takes away their mineral rights, then it forces them to sell to black empowerment partners, and now it wants to impose a royalty charge.”
In South Africa Anglo was also subject to restrictive labour laws. As a result, it was trading at a discount to “its peers”, BHP Billiton and Rio Tinto.
The strengthening of the Anglo board is seen to have been achieved by blending dyed-in-the-wool Anglo establishment types with independently-minded outsiders. The method is most clearly shown in the appointment of renowned corporate environmentalist Sir Mark Moody-Stuart as chairperson last year. Moody-Stuart succeeded Julian Ogilvie Thompson, who retired after 46 years with the group.
Non-executive directors like AngloGold CEO Bobby Godsell, who has been with the group since 1974, and De Beers chairperson Nicky Oppenheimer, with 35 years’ service, serve alongside the likes of Goran Lindahl, a non-executive director of Swiss homeware and decor group Ikea and electronics company Sony; former chairperson of Shell UK Chris Fray; and Fred Phaswana, BP regional president for Africa and chairperson and CEO of BP Southern Africa.
CEO Tony Trahar, who has been with the group since 1974, has spearheaded the recent changes.
In the build-up to its listing and for more than a year afterwards, the group engaged in a series of transactions designed to transform it into a global player through acquisitions and by shedding non-mining assets.
Among these transactions was the $1-billion deal disentangling its cross-holding with its sister company De Beers. The group bought out minorities in Amcoal, Amgold and Anamint, and sold interests in AECI, carmaker Samcor and financial services group FirstRand.
Its listing on the London exchange provoked strident complaints of capital flight and a lack of commitment to South Africa.
A study carried out two years ago by the BusinessMap Foundation found no conclusive evidence to support criticism that Anglo’s move was damaging to the South African economy. At the time at least, the foundation found the effects to be neutral.
However, the foundation’s director, Reg Rumney, does concede that moving listings offshore can have a negative effect psychologically. “It can make foreign investors argue: ‘If your best companies are leaving, why should I come in?'”
Other potential drawbacks include a drain of executive talent.
Michael Spicer, Anglo’s executive vice-president of corporate affairs, reiterates the group’s proposition that the London listing gave it exposure to a higher quantum of capital at a lower cost. “The group has repeatedly stated its commitment to South Africa and the region,” Spicer says.
Another reason to move is that even at maximum size, a company can still be vulnerable to a takeover. Anglo has the largest market cap on the JSE Securities Exchange at R160-billion. At the end of last year the group held 31% of its net attributable assets in South Africa. The rest were held in Africa (7%), Europe (35%), the Americas, (21%), and Australasia (6%).
As evidence of its continued local focus, the group says that in the next three years it will invest $2-billion in Angloplats, $450-million in the Scorpion Zinc project in Namibia and $90-million in a platinum project in Zimbabwe.
Its improving fortunes are borne out of its $3,7-billion in acquisitions last year and its record headline earnings of $1,25 a share, up from $1,14 a share the previous year.
Forest products contribute 20% to headline earnings, while the most significant source of growth, platinum, also contributes 20%. Gold’s diminishing influence is demonstrated by a 12% contribution.
Spicer points out that most of Anglo’s senior management shuttles between South Africa and other locations to close or monitor deals. The message Anglo tries to drive home to sceptics in London, Spicer says, is that a balance is needed between transformation and competitiveness.
Are they buying in? “They need further reassurance,” he says, adding that the motive is one of enlightened self-interest and a desire to protect the share price.
On lawyer Ed Fagan’s reparations claim against Anglo through the US courts, Spicer laments that “there is always an attempt to finger Anglo as a symbol of the past”, given its history and size.
He has called for the use of existing initiatives to address reconciliation, while Anglo “strongly rejects efforts to … use US courts to resolve important issues for South Africa’s future”.
The view held by trade unions on Anglo’s move is less rosy. George Lekorotswana, of the National Union of Mineworkers, says there has been no visible change in the group’s style since its move.
He argues that the group “has failed at all levels” with regard to emplyment equity. The board includes no women and only one black director. The only muted praise Lekorotswana offers is of AngloGold’s anti-retroviral programme and its signing of a global agreement to maintain international best labour practices.