Anglo may be lining up Kumba for sale

[miningmx.com] – ANGLO American is thought to have bought its iron ore project Minas Rio in Brazil at the top of the market. That was in 2007 and the investment totalled $5.1bn. There’s now growing speculation that it will sell the asset, after spending a further $9bn building the project, quite possibly at the market’s nadir.

Mark Cutifani, CEO of Anglo American, said in an investor update in December that Minas Rio was not performing as a ‘tier one’ asset – a descriptor for those mines that would escape the group’s restructuring in which up to 60% of the firm’s asset base would be sold.

The speculation this week is that Minas Rio is, indeed, being prepared for sale along with the group’s other Brazilian assets including the Barro Alto nickel project as well as the already flagged Copebras phosphate-niobium assets. Bidding will start at $3bn.

Cutifani’s Anglo has no choice. It has to act more decisively to convince the market it knows how to cut debt sufficiently.

“I think people are looking for Anglo to announce something big at the [full-year scheduled for February 16] results,” said Marc Elliott, an analyst from Investec Securities.

“Certainly I hope they learned from the investor day that a clearer, firmer, near-term strategy to fix the balance sheet is needed, and that having liquidity only gives time, it doesn’t reverse the trend,” he said.

Elliott is part of the Investec team that in May last year recommended Anglo get out of iron ore altogether, selling to a Chinese investor (which would find favour with the South African government) and focus on its diamonds and precious metals roots.

Quite where this leaves Kumba Resources, Anglo’s 70% owned subsidiary, listed in Johannesburg is a matter for conjecture.

Again, analysts think it will be sold.

“We believe iron ore is no longer a core commodity for Anglo American,” said one. “The probability of disposal of its interests in Kumba is relatively high, in our view, as Anglo American assesses its portfolio on free cash flow generation and sustainability grounds and in light of the recent exit from its Rustenburg PGM assets,” he said.

This is not a universally held view, however. According to Hanre Rossouw, a portfolio manager with Investec Asset Management, Anglo wouldn’t recoup much from Kumba which has a market value of only R12bn.

“Anglo probably needs to get net debt down to $10bn but they are selling at a low in the market and I’m not sure how much it would get for those assets. Maybe they ought to look at selling one of the crown jewells, such as Collahuasi,” he said.

There also the complication of Kumba’s black economic empowerment credits. The black owners in Exxaro Resources, which have a 19% stake in Kumba, are considering their options. It’s not a slam dunk that the Kumba stake is core to Exxaro which could see Anglo selling an asset that potentially has no empowerment.