Anglo American investors demand clarity as dealmaker incoming chairman arrives

By Barbara Lewis and Clara Denina

Anglo American's new chairman, who arrives on Wednesday, faces investor calls for clear direction at the miner, long seen as a potential takeover target.

The smallest of the world's four big miners, Anglo is viewed as the most vulnerable to being bought, and incoming chairman Stuart Chambers has a strong record in securing buyers for the companies he leads.

The mining majors have accrued cash as commodity markets recover, but their share prices are below all-time highs as investors shy away from a sector known for reckless deals in the past.

Anglo is viewed as particularly undervalued because of its focus on South Africa, where unions are restive; mines are old, deep and difficult to access; and the industry is in dispute with the government over its mining code.

Top 20 investors in the company who asked not to be named said Anglo's CEO Mark Cutifani had sorted out operational issues, but a vision for what happens next in South Africa and elsewhere is needed.

"What investors want to see is clarity on exactly what Anglo's strategy is," one shareholder, who asked not to be named, said.

"The longer-term investment case is that Anglo becomes a takeover target."

Some industry sources, however, say that as Anglo American is no longer a forced seller since it has recovered from the 2015-16 crash, it could be a buyer if the right assets are available.

LONG DEBATE

Selling Anglo has been discussed by industry sources for years – and Chambers comes with good experience.

When chairman of ARM, Britain's most successful technology company, he helped to sell it to Japan's SoftBank for 24.3 billion pounds ($32 billion). Before that, he was CEO of Pilkington glass, which was sold to Japan's Nippon Sheet Glass in June 2006.

But any move to sell Anglo would be complicated by its two biggest shareholders: Indian billionaire Anil Agarwal, who has built up a nearly 20 percent stake since March this year, and the Public Investment Corporation (PIC), South Africa's government pension fund, which has just over 13 percent.

Agarwal is chairman of diversified miner Vedanta and he discussed a potential merger between Anglo and Vedanta unit Hindustan Zinc last year, although the idea never gained traction.

He has said his stake in Anglo is for his private family fund and he is not seeking a takeover. He declined requests for comment.

South Africa's PIC would like to see a break-up whereby Anglo creates an Africa-focused local company, owned and run by South Africans, and keeps its overseas operations, a source said, asking not to be named.

The PIC did not respond to requests for comment.

If Agarwal manages to get a 30 percent stake, he would have to launch a takeover bid, but that too is complicated because of the structure of the specially designed convertible bond he has used to acquire shares.

Bankers and industry sources say they do not know his intentions, but at the very least he is acquiring influence and if Anglo American's share price rises above 18 pounds ($23.76), up from around 14 pounds now, he'll be in the money.

"Anglo American is providing a sizeable platform for him that could merge with his business at some point," one banking source said, asking not to be named.

Ian Woodley, portfolio manager at Old Mutual Investment Group, which has a small stake in Anglo American, said Agarwal's interest had encouraged investment. He also said a South African break-up would be beneficial.

As the big miners' cash reserves are rising again and debt levels have shrunk, industry sources say Chambers has ample time to meet Anglo shareholders and listen to their demands.

The company's share price is up by around a fifth this year on top of gains of nearly 300 percent in 2016 when it led the London Stock Exchange higher – although like other mining majors it is still below levels seen in the boom years around 2008 and then 2011.

Some industry sources say a Japanese buyer for a stake is not out of the question. Mitsubishi and Mitsui have minority stakes in Anglo's Los Bronces copper mine in Chile.

For now, the simplest way to keep investors happy and boost the share price is a higher dividend, and Anglo American announced in July it was reinstating its dividend six months early. ($1 = 0.7575 pounds)

(Additional reporting by Paul Sandle and Kit Rees; Editing by Susan Fenton)