More than mining: Anglo sets up trading arm
Anglo American takes a leaf from Glencore's book, sets up trading and logistics division set to contribute $400m to profits within two years.
Diversified mining group Anglo American (LON:AAL) surprised markets and ended 2013 on an exceptional note, as the turnaround plan under new CEO Mark Cutifani gathers pace.
The London-listed giant reported robust increases in iron ore, copper, coal and platinum production and long-suffering investors – the company's shares remain 28% cheaper than this time last year – duly rewarded it.
Apart from cost-cutting, rationalization and a renewed profit over growth focus, Cutifani who took the reins of the company last year, also signalled a new approach to the business of mining to differentiate Anglo from its peers, which have become increasingly dependent on iron ore for profits.
Cutifani, the third CEO to run the company in 10 short years, told South African magazine Financial Mail in October of his intentions to take a leaf out of the books of Swiss rival Glencore and the world's oil majors to become more vertically integrated:
“In the big five, you’ve got a Brazilian iron ore company; an Australian iron ore company; a large-scale, partly diversified company in BHP Billiton; and a broadly diversified company in Glencore Xstrata, which has a trading platform. In Anglo American there is a broadly diversified mining company with a strong focus on operating performance and a big opportunity to improve on that. We and Glencore Xstrata are the only two truly diversified resource companies.
“We want to do more with our commercial side on the lines of what Ivan [Glasenberg — CEO of Glencore Xstrata] is doing, and our big value-add is getting our assets to their full potential.”
Cutifani has started to make good on his word, completely overhauling Anglo's sales operations and consolidating nine export and marketing offices into two regional hubs.
The Financial Times (sub) reports the result has been the creation of a new commercial unit, which is "promising to add $400m to the company’s profits by 2016:"
"It plans to do this by selling Anglo’s output – which includes coal, platinum and iron ore – in a more intelligent way and adopting some of the sophisticated strategies used by the big commodity trading houses.
"With the exception of Glencore Xstrata, big mining companies have traditionally shied away from trading. Many subconsciously link physical trading to the business of outright price speculation even though the reality is more subtle. (Traders often run flat books and take advantage of superior market intelligence and logistics to make money. They do this through by exploiting different prices for products in different parts of the world)."
While the success of the new strategy remains to be seen Anglo's deep knowledge of the global coal trade acquired during the previous century from its Johannesburg base (where Glasenberg and Xstrata's Mick Davis also cut their teeth), the vertically integrated model has its adherents.
After being pushed out in the Glencore takeover, former Xstrata chief Mick Davis has been working hard to raise money for his new venture.
Davis hopes his X2 Resources will soon have a war chest of $3 billion to snap up mining assets around the world, which at the moment can be had at bargain prices.
And the first investor Davis lined up?
Glencore rival Noble Group, a Hong Kong based commodities trader and logistics company with revenues set to top $100 billion this year, ponied up the initial $500 million.
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