Anglo American to sell Kumba despite iron ore rally — experts

Sishen mine is Kumba Iron Ore’s flagship operation and one of the world’s largest open pits. (Image courtesy of Kumba Iron Ore)

Anglo American (LON:AAL), the world’s fifth largest diversified miner, will likely go ahead with its planned sale of its South Africa-based Kumba Iron Ore division, even though an ongoing rally in prices for the commodity has increased the asset’s appeal, experts say.

According to BMI Research, while iron ore prices have climbed 90% in the last year to over $80 a tonne, the sale of Africa’s largest iron ore mine would prove prudent for Anglo’s long-term outlook, given its elevated debt load.

“This positive price dynamic, coupled with the 550% rise in Kumba Iron Ore’s US share price in 2016 (…) presents Anglo with a strategic opportunity to sell the mine at a premium,” they said in a note released Thursday.

Anglo American to sell Kumba despite iron ore rally — experts

Hit by a deep rout in commodity prices, and burdened by large borrowings, Anglo last year put its coal, iron ore, manganese and nickel assets up for sale as part of a radical “portfolio restructuring,” which aims to have the group focus only on copper, diamonds and platinum.

Since the plan was unveiled, however, most commodities have rebounded, boosting Anglo’s cash generation and profitability to such an extent that the miner is now on track to meet its year-end debt-reduction target without more disposals this year.

Market rumours had indicated that Anglo favoured a spin-off of its iron ore and thermal coal assets in South Africa, rather than selling them one at the time.

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