Anglo American has seen its value rise by 10,4% — R30-billion — since its big R90-billion sale plans were announced last October.
Anglo’s market cap has risen from R290-billion to R320-billion in the three months since Anglo announced its intent to restructure, said a JSE official.
Anglo has not made clear exactly what will be sold. But analysts are speculating that the total sale value could be R90-billion.
While other corporate restructurings, such as the R223-billion merger of BHP Billiton and the R154-billion delisting of De Beers, have higher deal values, the Anglo sale has the potential to fundamentally alter the South African corporate landscape. Major sales are expected to include AngloGold Ashanti, Highveld Steel and Vanadium, Mondi and Tongaat-Hulett, all of which will become stand-alone entities that will report directly to shareholders rather than to 44 Main Street.
Analysts believe the first sales could be announced next month when Anglo reports its results.
In October last year, Anglo chief executive Tony Trahar announced a new-look Anglo that would focus on fewer core activities. This follows a strategic review aimed at rationalising and simplifying the corporate structure and giving it greater control over its core mining businesses in platinum, diamonds, coal, base metals and iron ore.
There has been criticism that as a holding company Anglo has not been adding value to the companies it controls. Investors as a rule prefer to invest directly and not through holding companies.
The market has applauded the sale strategy, increasing Anglo’s overall value by R30-billion in just 12 weeks.
The possible sale of AngloGold Ashanti, valued at R45-billion, would represent one of the largest splits in South Africa’s corporate history.
Anglo has neither confirmed nor denied a report in the British Sunday Times that it was planning to sell its 51% in AngloGold Ashanti, though the parent company has made clear its intention to reduce its shareholding in the world’s third-largest gold miner.
AngloGold Ashanti accounts for roughly a fifth of Anglo American’s market value of R320-billion, but analysts say international investors would like the group to reduce its exposure to South African gold mining because of the high capital cost of projects and the inherent dangers of deep-level mining.
Anglo could use this cash to pursue growth opportunities in high yielding assets, while AngloGold would be free to pursue growth opportunities outside mature gold mining regions such as Africa and Australia.
There is also speculation that top- five gold producers Gold Fields and AngloGold are in discussion with a view to striking a deal, though one analyst suggests this makes little sense if AngloGold’s intention is to diversify away from Africa.
Russian mining group Norilsk is a 20% shareholder in Gold Fields and analysts believe it may not be keen on increasing its exposure to South Africa, even with a gold price above $550 an ounce.
There is also talk of number six Harmony making a bid for some of the AngloGold assets, following its failed bid to acquire Gold Fields last year. If the group is sold piecemeal, South African mining groups might end up with the rump of the assets.
But, if the shareholding is sold in a single block, analysts believe gold majors Newmont and Barrick are possible suitors, though their aversion to South African deep-level mines, and the attendant labour issues, is well known.
Steven Lenahan, head of corporate affairs at AngloGold Ashanti, said should Anglo dilute its shareholding in the gold mining business, AngloGold Ashanti will have more flexibility to pursue growth opportunities elsewhere.
Currently, South Africa accounts for slightly more than half of the total AngloGold production, which is well below that of competitors Harmony and Gold Fields. “Our focus is likely to be on shareholder value rather than simply increasing the number of ounces produced,” said Lenahan.
Leon Esterhuizen, a gold mining analyst at Investec Securities, said Anglo’s proposed sale of part of AngloGold Ashanti reflects a more general move by the group away from South Africa, which is perceived as a high-cost, high-risk mining region. “United States investors in particular are not very keen on South African gold mines because of the safety issues and high capital costs of expansion.”
Lenahan said there are promising deposits in non-traditional gold regions, such as China and Russia, which are attracting strong interest from the gold majors, and AngloGold may be keen to bid for some of these.
The group announced plans to sell its 79% stake in Highveld Steel and Vanadium, worth about R7,3-billion, and establish its paper subsidiary Mondi as a separate business.
Plans are also afoot to improve the performance of the group’s industrial arm, Tarmac, by focusing on better performing parts of the business and selling off those that underperform.
Other speculation doing the rounds is that Anglo might consolidate its interests in the platinum sector by buying out minorities in Anglo Platinum, thereby substantially reducing investor choice in this sector.
Returns from platinum have been far more stable than that from gold. One of the ironies of the latest development is that Anglo seems bent on lightening its gold exposure just as the dollar gold price breaks 20-year highs, and analysts see $600 an ounce on the near-term horizon.
The rand gold price has broken out of a two-year channel to challenge prices last seen in 2002. From a timing perspective, this may be an act of brilliance on Anglo’s part. But, if the gold price sails to $600 and beyond, it may turn out to be an act of folly.
Mark Appleton of Barnard Jacobs Mellet Securities estimates that the assets for sale represents about 28% of Anglo’s market capitalisation, but that once the company has restructured there will be revaluation of the streamlined Anglo group.