Anglo American, the mining empire built by the Oppenheimers on the goldfields of the Free State and Witwatersrand, is saying goodbye to gold.
It announced recently that it would sell down its interest in AngloGold Ashanti, though it still intended to retain a significant shareholding in the medium term. Over the longer term, Anglo American seems more likely to sell out its gold interests completely.
Theoretically, this makes AngloGold Ashanti a takeover target, but as one gold analyst puts it, AngloGold is ”more likely to do lunch than be lunch”.
That doesn’t discount the possibility that Newmont or Barrick, two gold majors based in North America, would not cobble together a bid for AngloGold, but they might only do so on the basis that the South African deep-level mines would be excluded or on-sold.
Barrick recently completed a take-over of Placer Dome, so it has some digesting to do before it contemplates an even larger meal. Newmont may be in a better position to bid for control, though its aversion to South Africa deep levels mines, which are costly to develop and run, is well known.
Anglo American’s decision to scale down its gold investment brings a -century-long chapter in its history to an end. In the early part of the past century gold paid for its entry into finance, industry and other commodities.
One of the axioms of investment is never to be married to an asset, especially for sentimental reasons. With current gold prices above $550 an ounce, Anglo probably feels the gold price will struggle to go higher in the short to medium term, so this is a good time to exit, according to one analyst.
Freed from Anglo’s control, AngloGold Ashanti will be able to pursue acquisitions more aggressively. ”Anglo-Gold is restricted in its ability to make acquisitions because each time it issues new shares, Anglo American has to lay out cash to make sure it retains control,” says Hugo Nelson, portfolio manager at Coronation Fund Managers.
Anglo American, which holds just more than 50% of the R87-billion Anglo-Gold Ashanti group, also announced that it intends to list its wholly owned paper and pulp subsidiary Mondi, and had received several bids — both local and international — for 79% owned Highveld Steel and Vanadium.
Investec Securities precious metals analyst Leon Esterhuizen says the reason for the sale of AngloGold is ”to cash in a little rain check. It will be selling paper at a price earnings [PE] ratio in excess of 50 and probably reinvesting it in assets valued at a PE of below 20.”
Nelson says, by selling off AngloGold and Mondi, two high-yielding plums in the Anglo portfolio, the relatively low valuation of the remaining assets in coal, iron ore, nickel, zinc, platinum and base metals will become more visible. ”Take out the high-yielding parts of the portfolio and investors will then see that the rump of the portfolio is actually quite cheap,” says Nelson. ”This should lead to a re-rating in Anglo’s share value.”
Anglo American this week announced a record 39% increase in earnings to $3,7-billion for the year to December 2005, and a 36% increase in operating profit to $6,4-billion. It also announced a $6,7-billion project pipeline, of which $3,8-billion had already been approved, most of it for coal and platinum developments.