Anglo sells niobium, phosphate assets for $1.5bn

ANGLO American is to sell its niobium and phosphates assets in Brazil for $1.5bn to China Molybdenum Company, a sum that could see the group retain its investment grade rating given the impact this would have on reducing net debt.

The transaction represents Anglo’s first significant divestment since its February announcement that it would sell up to 60% of its mines in order to reduce net to below $10bn by end-December. Net debt was $12.9bn in December 2015.

“The sale of our niobium and phosphates businesses is another positive step forward in the strategic reshaping of Anglo American that we set out in February,” said Mark Cutifani, CEO of the UK-listed group.

“The transaction confirms our commitment to creating the new Anglo American, positioned to deliver robust profitability and cash flows through the price cycle,” he said.

The assets comprising the niobium and phosphates division are located in the Brazilian states of Goiás and São Paulo, said Anglo. The businesses generated pretax earnings of $146m in Anglo’s 2015 financial year.

The phosphates business consists of a mine, beneficiation plant, two chemical complexes and two further mineral deposits. The niobium business consists of one mine and three processing facilities, two non-operating mines, two further mineral deposits and sales and marketing operations in the United Kingdom and Singapore.

In February, Cutifani said the group would sell assets for up to $4bn – $2bn more than unveiled in December in an earlier iteration of its net debt reduction plans – which would render the group a focused precious minerals and copper business.

So far this year it has sold its 70% stake in Australian metallurgical coal mine Foxleigh for an undisclosed amount as well as its Callide coal mine, also in Australia.

It also announced it had bought back $1.8bn in bonds which would reduce net debt by $130m and save it $190m over three years including interest repayments.

Major assets still on the block are its stake in Colombian coal producer, Cerrejon, as well as its thermal domestic and export coal mines in South Africa, as well as various platinum assets in South Africa.

Analysts said the transaction represented serious progress for Anglo which was hammered last year for failing to move quickly enough on its high level of net debt.

“The key takeaways are that the $1.5bn price received is probably better than market expectations, that it makes a significant inroad into Anglo American’s debt reduction program, and that it potentially puts the company in a stronger negotiating position with regards to the rest of its asset disposal program,” said BMO Capital Markets in a report.

It added that the transaction should take Anglo American’s year-end 2016 net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) multiple down to less than 3 times from a projection of 3.3 times previously. “This may be sufficient for Anglo American to regain an investment grade credit rating,” it said.

Bank of America Merrill Lynch was also positive on transaction with China Molybdenum but said there was still “execution risk” on asset sales beyond the $3bn to $4bn planned for this year.

Johann Pretorius, an analyst for Renaissance Capital, said the transaction would help focus Anglo American on its key assets which he believed was a positive step.

Analysts, however, are mixed on the strategy in the long-term. Paul Gait at Bernstein said in a note that Anglo was preparing itself for an exit from the public markets as it would be small enough for private equity to buy in time.

“No longer does this feel simply like an asset slim-down in order to repair the balance sheet in the near term,” said Gait in a report dated March 29. “Instead it feels like a management team driving towards an exit of the business in the medium term,” he added.

Investec Securities has also been critical. It said Anglo was selling $2bn in pretax earnings by 2020 and therefore removed optionality on a recovery in the commodity markets for shareholders.

“A consequence of the disposal strategy is that it undermines the optionality of the diversified business, effecting forcing shareholders into a less diversified model. If a spin out had been achieveable – like BHP’s South32 – shareholders could have elected to stay or exit”. It has recommended investors exit their positions in Anglo.