Anglo American (LON: AAL), the takeover target of mining giant BHP (ASX: BHP), has ceded to pressure from investors, announcing plans to sell some of its legacy assets in an attempt to protect itself from current and future bids.
The sweeping break up plan, , will see Anglo American sell its diamond business De Beers, its South Africa-based Anglo American Platinum聽鈥� Amplats 鈥� (JSE: AMS) and its steelmaking coal assets.
The company, which rejected on Monday BHP鈥檚 $43 billion second offer, is keeping its copper, iron ore and crop nutrients businesses. Anglo American owns three of the top 10 producing copper mines in聽South America,聽with ample room for growth. It is also a main producer of premium iron ore, which has historically accounted for the lion鈥檚 share of Anglo鈥檚 profit.
The company plans to decrease investments in its recently acquired fertilizers business from 拢1 billion ($1.26bn) to 拢200 million ($251m) in 2025.听The next step will be to find strategic investors who can support the resumption of full-scale operations at the Woodsmith聽polyhalite project, starting in 2026, chief executive Duncan Wanblad said.
While the 107-year-old聽miner was already in the midst of聽its own review of assets, the timeline had to be sped up after BHP鈥檚 sweetened bid, Wanblad said. The overhaul, described by the top executive as a 鈥渃lear, compelling and decisive plan鈥�, will unlock value for Anglo鈥檚 shareholders by creating a 鈥渞adically simplified鈥� company focused on 鈥渨orld-class assets鈥�, he noted in a media call following the announcement.
鈥淭hese actions represent the most radical changes to Anglo American in decades,鈥� Wanblad added.
Anglo鈥檚 boss said the miner will be 鈥渆xtremely highly valued鈥� by the end of 2025, when the restructuring is complete, 鈥渢o the extent that if anybody wants to buy us at that particular point in time, they are going to have to pay an enormous amount of money for it.鈥�
The sudden announcement is viewed by some analysts as a strategy to attract interest from other potential buyers for the company鈥檚 non-core divisions, and also to discourage BHP鈥檚 aggressive takeover attempts.
鈥淭hose assets that would be put up for sale will most certainly appeal to competitors, some in aggregate (perhaps forcing an offer for the group, like BHP is attempting, before it breaks itself up) and some in part,鈥澛爀nergy and mining analyst at Quilter Cheviot, Jamie Maddock, said in a note.
BMO analyst Alexander Pearce said that just reducing the spend on Woodsmith may be enough for a reasonable re-rating on Anglo American. 鈥淭he intention to accelerate strategic changes is likely to be well-received, albeit the company would be less differentiated vs. peers.鈥�
Pearce noted the Anglo鈥檚 plans have a target of $1.7 billion in cost savings thanks the new portfolio configuration, including $800 million cost savings from the end of 2025.
The move will take Anglo from being the most diversified to the most concentrated major miner, according research firm Wood Mackenzie.听
鈥淲e believed that a major reshuffling of Anglo American鈥檚 portfolio was inevitable,鈥� said Wood Mackenzie鈥檚 James Whiteside, metals and mining corporate research director. 鈥淏ut opting to divest or demerge whole segments of its portfolio does align with the company鈥檚 new strategic priorities.鈥澛犅�
Others are not big fans of the plan. Analysts at CreditSights said that Anglo鈥檚 proposal is not better than BHP鈥檚 scheme. They believe the target company assembled the breakup plan in a haste and with scarce details about it.
鈥淎nglo鈥檚 restructuring proposal seems more radical than BHP鈥檚, with intentions to divest four assets compared to BHP鈥檚 plan to shed just two,鈥� they wrote. 鈥淸While ] both proposals carry significant execution and regulatory risks, if anglo remains independent, its shareholders will shoulder these risks.鈥�
Anglo american seems to have taken a page off Teck Resources鈥� (TSX: TECK.A, TECK.B)(NYSE: TECK) book. When faced by an unsolicited takeover bid from Glencore (LON: GLEN) last year, the Canadian miner shed its coking coal assets, which it were bought by the Swiss miner and commodities trader.
Lost sparkle
De Beers, the world鈥檚 largest diamond producer by value, was founded in 1888 in South Africa by British mining magnate Cecil Rhodes. The company was partially owned by the Oppenheimer dynasty, which also founded Anglo American, until the family sold their 40% stake to Anglo American itself in 2012.
The diamond producer used to be the prized possession of Anglo鈥檚 extensive business empire. It held a dominant position in the global precious stones market in terms of both overall sales and public perception, due to the long-lasting impact of its 鈥淎 diamond is forever鈥� campaign from the 1940s.
The diamond sector, and De Beers in particular, has faced challenges in the past three years due to declining sales, a sluggish global economy, and the rise of lab-created diamond alternatives.听
Mark Wanblad said De Beers remained 鈥渁 great business鈥� and noted the unit had already attracted interest from prospective investors, without mentioning names.
Anglo鈥檚 CEO expressed confidence that the 鈥渟tructural issues鈥� facing the diamond industry will be resolved. 鈥淭here鈥檚 no doubt in our mind that the structural issues that everyone talks about will pass,鈥� he said.
Market reaction
The company鈥檚 bold move may thwart BHP鈥檚 plans of turning itself into a copper giant, controlling about 10% of the metal global production at a time when an urgent shift to a greener economy is boosting both prices and demand.
Wood Mackenzie highlighted that iron ore and copper have been outsized cash generators for Anglo over the last five years, delivering 58% of the company鈥檚 underlying earnings before interest, taxes, depreciation, and amortization (EBITDA).听聽
鈥淟ooking forward, even without fresh investment, copper will overtake iron ore in cash generation and this would allow Anglo American to use the proceeds to focus on brownfield growth at these core assets,鈥� Whiteside said.听聽聽
South African mining minister Gwede Mantashe told that he would prefer Anglo鈥檚 restructuring plan over a BHP-driven split and takeover. 鈥淚 am happy with the rejection of the BHP deal and I hope it will continue, then Anglo can restructure itself to optimize value for shareholders,鈥� he said.
The minister鈥檚 support is crucial as it reflects the government鈥檚 stance on the restructuring of a major player in the country鈥檚 mining industry.
The Church of England Pensions Board, a UK asset owner and long-term shareholder in Anglo American, was also pleased with today鈥檚 announcement.
鈥淲e need more companies like Anglo that are willing to grasp the opportunities of operating in emerging and developing markets such as Africa, not fewer,鈥� it said in . 鈥淎s a UK pension fund, we are keen that the London Stock Exchange remains a premium market for mining companies.鈥�
Activist fund Elliott, one of Anglo鈥檚 top 10 shareholders after聽building up a $1 billion stake, is expected to put out a statement later in the day.
Ashwin Pillay, senior associate at Charles Russell Speechlys law firm, said the new plan addresses shareholder concerns regarding the undervaluation of Anglo鈥檚 copper mines due to less valuable operations like the diamond division. He also pointed out that there is still a chance for BHP to increase its offer, potentially by including a cash component to make the deal more appealing.
鈥淚f we were Anglo鈥檚 shareholders,鈥� CreditSight鈥檚 Wen Li and Michael O鈥橞rien wrote in a note to investors, 鈥渨e would advocate for a higher bid from BHP and encourage competition by inviting other bidders to participate.鈥澛�
Other experts believe Anglo American could easily obtain $25 billion in asset value through divestment or demerger (gross of exit costs) of its other commodities assets such as platinum, steelmaking coal and nickel over the next few years. For Wood Mackenzie, this represents a potential uplift of $9.1 billion over the research firm鈥檚 base net asset value (NAV).听
Sector insiders warn that executing Anglo American鈥檚 strategic plan will not be easy. By showing a willingness to deconstruct the group, the company has given credibility to BHP鈥檚 proposed takeover, potentially making it more palatable to regulators in key markets such as South Africa, Wood Mackenzie鈥檚 Whiteside said.
Whiteside agrees that Anglo鈥檚 plan is undoubtedly bold, and shedding the equivalent of 39% of 2024 earnings would be transformational. However, the execution risk is substantial and borne entirely by Anglo American shareholders. If an increased offer from BHP did materialize, it could be seen as a more straightforward option for shareholders.
鈥淎nglo American鈥檚 strategic plan is undoubtedly bold and shedding the equivalent of 39% of 2024 earnings would be transformational,鈥� Whiteside concludes. 鈥淗owever, execution risk is substantial and borne entirely by Anglo American shareholders so if an increased offer from BHP did materialise, it could be seen as a more straightforward option for shareholders.鈥澛犅�
Shares in Anglo American fell 2.8% to 2,632p by mid-afternoon in London, but recovered later, closing 1.4% higher at 2,745p. This leaves the company with a market capitalization of $44 billion as of Tuesday evening.