Anglo American (LON:AAL) is facing increasing pressure to make a decision on its plans to sell or spin-off its iron ore, coal and manganese operations in South Africa next year.
The world’s number five diversified miner has already held talks with its biggest investor, the country’s state-owned Public Investment Corp. (PIC), which was pressing Anglo to include its prized platinum assets in any planned divestment of the local operations.
And while the company is said to have persuaded PIC, which holds a 14.5% stake in Anglo American, to drop such request, the issue of how to package the assets and which ones to include, remains a bone of contention.
“With so much history and national identity wrapped up in the company, it will be a complicated divorce,” Bloomberg fittingly puts it.
Indeed it will. Not only South Africa is Anglo’s historical home — it was founded there in 1917 by Ernest Oppenheimer — but the company operates 15 mines in the country, owns controlling stakes in Kumba Iron Ore Ltd. and Anglo American Platinum, the world’s biggest producer of the metal, and also has other joint ventures there.
“South Africa’s economic development basically began with gold and diamonds, and Anglo was a major part of that,” Dave Mohr, chief strategist at Cape Town-based Old Mutual Multi-Managers, told Bloomberg. “Decisions were made to buy very expensive assets at the top of the commodities cycle. That’s their biggest problem and the main reason they’re now having to sell.”
Hit by a deep rout in commodity prices, and burdened by large borrowings, the company in February 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.
But since the plan was unveiled, 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 indicate that Anglo favours a spin-off of its iron ore and thermal coal assets in South Africa, rather than selling them one at the time.
PIC, in turn, wants to create a locally owned mining giant to increase black ownership of companies and generate income for the pensions the fund manger oversees.
If chief executive Mark Cutifani were to go ahead with a spin-off, PIC would own about 30% percent of Anglo America, a person familiar with the matter told Bloomberg in October.
Anglo shares were up 1.8% to 1,274 pence as of 2:38 p.m. in London. The company has become the best-performing stock in the FTSE 100 this year and the stock has quadrupled in price so far in 2016.