The market was largely in agreement on Wednesday that Anglo American had chosen the right bits of its sprawling portfolio to sell off: namely gold, paper and packaging and industrial minerals.
In the run-up to the Anglo board’s strategy meeting this month there was much speculation about what the group might do to fix its lacklustre share price.
Some analysts were championing a so-called “jewellery box” spin-off – the sale of all of Anglo’s diamond, gold and platinum assets – so the group could focus on other types of mining.
Others were keen that platinum and diamonds should stay. But most agreed that Anglo was not getting the full benefit of owning its 51 per cent stake in AngloGold Ashanti.
“Gold mining companies trade in the market at a different valuation to the diversified miners,” said Bobby Godsell, AngloGold Ashanti chief executive, yesterday.
AngloGold’s South African shares trade at about 30 times the value of its earnings, while Anglo American is trading on a multiple of 10 times.
It was expensive for Anglo to maintain its majority stake in the group each time AngloGold issued more shares, and it would be
better to sell down its stake and use the proceeds elsewhere, according to Tony Trahar, Anglo American’s chief executive.
Mr Godsell said this would give AngloGold greater freedom to pursue deals and investments. “If Anglo American no longer holds us as a subsidiary, there will only be one layer of decision-making.”
AngloGold yesterday brought forward the release of its third-quarter earnings to coincide with the announcement. The company said it had made a net loss of R415m ($62m) because of interest costs on a convertible bond.
Anglo American’s paper and packaging division, thought to be worth up to $5bn, has been a weak performer for several years due to a fall in European paper prices.
However, the group has continued to invest in the division; last year Anglo unsuccessfully bid for Portucel, one of Europe’s largest paper companies.
Most analysts said the business should be sold off but Mr Trahar said paper remained a good generator of cash and he would rather wait for prices to recover “to capture full value” before a disposal.
The industrial minerals business, led by Tarmac of the UK, had some synergies with Anglo American’s mining operations but returns were below what they should be, said Mr Trahar.
One analyst said that
the acquisition of Tarmac had been “the right acquisition, badly executed” and that the division needed new management. The sale of this business could raise $5bn-$6bn.
Anglo American also said it would sell its 79 per cent holding in South African steel maker Highveld Steel and “examine ways of unlocking value” at its Tongaat Hulett aluminium and sugar unit.
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