Anglo calms South African investors with spin-off plan
By Jon Yeomans
The FTSE 100 giant has persuaded the Public Investment Corporation that the platinum arm should remain part of the wider mining group. The PIC, which has a 14.5pc stake in Anglo, manages more than $100bn (£80bn) in public sector pensions and is backed by the South African government. It has made a series of vocal interventions on
Anglo’s restructuring plan, which was announced last year as the company battled to pay down debt and tackle plunging commodity prices.
However, the PIC is understood to have accepted that the platinum business should not be separated from the wider group. Platinum, used in catalytic converters and jewellery, has been singled out by Anglo boss Mark Cutifani as one of three key commodities that the miner will focus on – the others are diamonds and copper.
Rising commodity prices this year have eased the pressure on Anglo to sell mines in a hurry to shore up its balance sheet. It is now looking at a way of packaging up its thermal coal and iron ore assets in South Africa into one entity. This fits with PIC’s desire to have a company in South Africa that will be a domestic “mining champion”, which will safeguard jobs and help reinvigorate the economy.
Anglo believes such a move would be easier to deliver than individual asset sales and provide a better deal for shareholders. The company struggles to move funds out of South Africa and wants to reduce the proportion of its income from the country to about 33pc, down from 40-45pc now. Anglo’s historical home has been racked by political and economic instability, while a review of the mining charter has made life difficult for such companies.
Mr Cutifani has signalled that resolving Anglo’s position in South Africa will be a priority next year.
Recent spin-offs in the mining industry such as South32, which demerged from BHP Billiton in 2015, have enjoyed buoyant share prices since splitting from their parent companies, making such a move by Anglo more “feasible”, according to analysts. However the company is thought to favour a divestment over the South32 model.
Liam Fitzpatrick, an analyst at Credit Suisse, said that a spinout would be the “quickest and cleanest solution”, though it would not please all of Anglo American’s shareholders. The plan could be well-recieved in South Africa, however. “If Anglo creates a separate South Africa-focused business that will invest in the country, that could resonate with local stakeholders,” Mr Fitzpatrick said.
A spokesman for Anglo American said: “We continue to work through all the various options for divesting the thermal coal and Kumba iron ore assets in South Africa, which may include packaging them for sale to create a new South African mining company.”
Anglo is expected to flesh out the details of its plan for its South African assets at its full-year results in February. Having been the worst-performing stock in the FTSE 100 in 2015, it is on course to be the best performing this year, with its shares rising 290pc in 2016, capping a remarkable turnaround in fortune.
A spokesman for the PIC was not available to comment.