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Anglo might be a target in M&A activity - John Clemmow, Investec
[miningmx.com] -- A LARGE gap exists between the valuation of mining companies' shares and the commodity prices and there are three ways that gap will close, with the most interesting one being through merger and acquisition activity. Anglo American could be just such a target, said John Clemmow from Investec Securities.
"We've seen a substantial decline in the equity valuations of a lot of the mining companies, while the commodity prices have hardly moved and the price of bulk commodities have actually gone up," he said on the Classic Business Day weeknightly radio show.
Clemmow has for a while now warned that commodity prices have run up too hard and are due for a correction at some point in the future.
"The equity markets say it's all going to end in tears, a view I concur with. The equity markets are saying it's going to happen quickly, I'm not so sure about that," he
said.
The valution gap will be closed in a number of ways. Firstly, commodity prices could post a sharp downwards correction, something Clemmow sees as unlikely given the nature of the commodity markets at the moment.
Equity prices could react positively to good news from mining companies like share buy back schemes or capital management programmes.
"Perhaps the most interesting one is that we are going to continue seeing M&A activity continuing in the sector," he said.
"It was noticeable this morning (2 August) that Xstrata said even though it was confident of securing Falconbridge they would continue to play a part in a rapidly consolidating global mining industry," he said.
"You should look at people who are going to be lunch rather than do lunch.
In the South African context, there is a continuing degree of speculation that Anglo American is dressing itself up to be the bride rather than the groom," he added.
Anglo
American is divesting itself of non-core assets. It has reached an agreement to sell its 79% stake in South Africa's Highveld Steel and Vanadium. It is looking to shed paper and packaging group Mondi. It is pulling out of AngloGold Ashanti and Tongaat Hulett, a sugar, aluminium and property company.
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