Anglo to cut ties with Amplats, De Beers in historic restructure ...

ANGLO American today announced a radical restructure – its most far-reaching in decades – in which it would demerge its 79% owned Anglo American Platinum (Amplats) and sell or demerge De Beers, the diamond miner with which it has been linked for over a century.

It also proposes the sale of its steelmaking coal assets and the closure or sale of its nickel operations leaving behind a simpler structure consisting of copper, iron ore (including Kumba Iron Ore in South Africa) and its crop nutrient project Woodsmith which it will delay in an effort to improve the group’s balance sheet.

Once completed, the group would have less than 1.5x net debt to Ebitda at the bottom of the cycle, maintain its 40% dividend payout policy, and reduce annual costs by $1.7bn.

“We expect that a radically simpler business will deliver sustainable incremental value creation through a step change in operational performance and cost reduction,” said Duncan Wanblad, CEO of Anglo American in a statement.

“Anglo American’s shareholders will see the full undiluted upside from these extensive changes, with the value of our copper and iron ore assets brought to the fore,” he added. “These actions represent the most radical changes to Anglo American in decades.”

The restructuring, which Wanblad acknowledged is moving quicker than planned when he alluded to a structural review in February, is intended to rebuff a takeover proposal from Australian miner BHP. It tabled a second, higher offer on May 7 valuing Anglo at £34bn.

Wanblad said Anglo’s proposal to unbundle Amplats was simpler than envisaged in BHP’s proposal which has a control complexity requiring “complicated inter-related processes and conditions which is borne by Anglo shareholders”.

But the restructuring also addresses the millstone which is Woodsmith’s $4.8bn capital cost, estimated on current plans to drain about $1bn from Anglo’s balance sheet annually for the next two to three years.

In terms of today’s restructure, Anglo will slow the development of Woodsmith, cutting capital expenditure to $200m in 2025 and not spending any capital at all in 2026, most likely reflecting the project’s syndication which Anglo said it was accelerating.

All in all, Anglo anticipated the restructuring replete with the separation from De Beers and Amplats completed by the end of 2025. There had been “inbound interest” in the firm’s coal assets already while “there are people that will be interested in De Beers,” he said.

Asked if it was poor timing to be selling De Beers at the bottom of the diamond price cycle, Wanblad responded there were “a number of potential pathways with De Beers, but it will be done for value”.

Once completed, he set out a vision for Anglo American ambitous to expand into copper production either through greenfields project development, organic growth and M&A which would be “on the cards for a new Anglo”.

JP Morgan commented last month in a note to client that Anglo’s “value proposition strategy” in which it would restructure over time would nonetheless leave a rump behind just as vulnerable as it is today. Wanblad rejected this argument. Commenting on the chances of BHP returning to Anglo American post its restructure he said:

“We are creating an incredibly robust busines with three fantastic verticals in it. We are going to be extremely highly valued. If they want to buy it, then they will have to pay an enormous amount of money for it. We are focused on getting to that position”.

“Step one is to get portfolio into this configuration; step 2 is to become the best operator in business; and step 3 to have the balance sheet that can afford growth,” he said.