Anglo American braced for takeover turmoil: De Beers proprietor weak

When Duncan Wanblad embarked upon the biggest shake-up in Anglo American’s’s 107-year history to fend off the unwanted advances of Australian mining behemoth BHP, he set himself a stiff challenge.

This challenge has become more daunting by the day in the four months since the miner’s chief executive told shareholders of his intention to sell the FTSE 100-listed company’s nickel, coal, De Beers diamond and platinum businesses within two years.

Whether it is tanking commodity markets, Anglo’s own rapidly-declining share price or a fire at its flagship Queensland coal mine, events have conspired against the South African’s fast-tracked plans to focus on its much-coveted copper operations and repair its balance sheet.

The upshot is that Anglo may soon become more vulnerable to a takeover than before – and at a lower price – having snubbed a £39billion offer from the world’s biggest miner. 

This risk, which Wanblad would of course have been acutely aware of, is about to come into sharp focus for Anglo’s shareholders. 

As part of Takeover Panel rules, the spurned bidder – in this case BHP – has to wait six months before coming back with another offer.

As BHP opted to walk away rather than take its bid hostile by the Takeover Panel’s deadline of 5pm on May 29, that restriction lifts at the end of November.

BHP chief executive Mike Henry has stressed that buying Anglo was never its only option and that it had plenty of others, including growing its South American copper business.

But the key reason it was attracted to Anglo in the first place – immediately expanding its copper empire in order to cash in on the global shift towards electrification and renewables – has not dimmed.

Meanwhile, there are other potential suitors with grand copper ambitions of their own, Glencore and Rio Tinto included, which may yet swoop in to pick up the pieces should Anglo stumble. 

Like other mining stocks, Anglo’s share price has been dragged down in recent months by falling commodity prices, but the scale of the sell-off hardly provides a ringing endorsement from investors in the company’s turnaround strategy.

Shares in Anglo have fallen by almost a quarter since May 10, a few days before Wanblad outlined his radical defence strategy.

Over the same period, shares in BHP have dropped 7 per cent, while Rio Tinto has fallen 15 per cent. 

To add insult to injury, analysts at JP Morgan yesterday cut their target price on Anglo shares to 2305p from 2440p. The stock fell 0.3 per cent, or 6.5p, to 2122.5p.

The slump in the share price in recent months makes Anglo American more of a takeover target, according to Russ Mould, investment director at investment platform AJ Bell.

‘The lower Anglo American’s share price goes the more vulnerable the company may be to a predator, who could decide the miner comes with a price tag low enough to offer downside protection if anything goes wrong and sufficient upside to compensate for the risks involved,’ he explains. 

With a market capitalisation languishing around the £28billion mark, Mould believes other bidders could soon come out of the woodwork.

He says: ‘Such a lowly valuation could well pop up on someone’s radar, especially if the share price sags any further should Anglo start to flounder in its efforts to carry out Wanblad’s asset disposals on time.’

Part of Anglo’s problem is its over-exposure to the commodities that it is trying to offload, including nickel, coking coal, platinum and diamonds.

This obviously makes fetching a good price for these assets more tricky.

Nickel futures have dropped a fifth over the last four months, amid a glut of cheap supply from Indonesia – bankrolled by China.

This hardly helps Anglo, which has already roped in investment bank Standard Chartered to offload its two nickel mines in Brazil.

Anglo’s trophy De Beers diamonds business poses another dilemma as the rapid growth in laboratory-grown diamonds (largely made in China) has fuelled a slump in demand for the real deal. 

The miner wants to sell the business at the end of next year, so there is at least plenty of time for diamond prices recover.

A more pressing concern though, is coking coal, the type used to make steel.

The firm’s coking coal business – which consists of five mines in Queensland – is set to be the first off the block, with Wanblad hoping to sell the assets by the end of this year. 

But a fire in June at its main Grosvenor mine has halted production, with operations expected to be suspended until the end of the year.

Steel prices have tanked as China’s property market, which accounts for 30 per cent of global steel demand, has slowed down drastically.

This has had a knock-on effect in coking (or metalurgical) coal prices, while the Queensland’s punitive tax regime for coal miners has also deterred potential bidders including BHP.

There are now half a dozen credible bidders for the coal mines, according a report in the Australian Financial Review, including Australia’s Stanmore Resources and Indian mining group AvidSys.

Unfortunately for Anglo, the bidders are reported to have valued the portfolio at well under the £4billion anticipated before the fire at the Grosvenor mine. 

With November around the corner, some of Anglo’s shareholders are likely to be feeling increasingly restless.