Anglo may seek SA Govt. concessions ahead of demerger

ANGLO American may seek concessions from the South African government so that it would be easier to mobilise the cash generated from its assets in the country.

Mark Cutifani, CEO of the UK-listed group, said in an interview with Miningmx on February 6 that the group would looking for “more flexibility” in its “financial arrangements” in South Africa. Asked if he agreed with analysts that a demerger was the most effective form of repositioning for Anglo’s South African mines, he said:

“Let me put a different proposition to you. Today we have businesses in South Africa that we’ve made hard decisions over in the last three years, and we’ve restructured. All of them are making cash and profits. So we’re pleased with the progress.

“We don’t need to change. It [a demerger] has to stack up against the value we see today and if it does then we look at doing something. But there’s a good chance we would stay carefully involved in certain assets in any case.

“But in the end what we’re looking for is more flexibility in the financial arrangements we have in South Africa. From our point of view, the current system works. We can make that work,” he said.

Anglo American said at its year-end results presentation in February last year that it would sell up to $4bn in non-core assets which would see it focus on platinum, diamonds and copper.

The restructuring was an effort to cut net debt to below $10bn, but an improvement in commodity prices has significantly increased free cash flow and consequently eased pressure on the balance sheet.

Tim Clark, head of mining research at Standard Bank Group Securities, said these comments were an indication that Anglo might seeks concessions from the government.

“Anglo doesn’t need to sell any assets and its priority will be on getting its investment grade rating back and paying dividends,” said Clark.

“But it does need to invest in its export coal mines in a couple of years whilst its UK shareholders probably want less exposure to South Africa. Thermal coal is not a popular commodity at the moment and Kumba Iron Ore is a high cost producer of iron ore.

“So Anglo may have good reasons for doing the de-merger, but it is probably wanting the government to give it the flexibility so it can do the unbundling,” he said.

Anglo is due to report its full-year figures tomorrow (Tuesday, February 21).

MINAS RIO

Other assets that Anglo said it would sell – such as its Minas Rio, an iron ore mine in Brazil which it built from scratch to great expense – may be kept within the group.

“The question will be asked by investors in February – which is the right question: ‘Okay, got your 2014 strategy; you’ve done a pivot, do you pivot back or are you working from a different position?” said Cutifani.

The first pivot was to make the more sweeping changes to the business through restructuring. The second pivot may be to retain assets and hold them for their cash generating capability. Cutifani indicates he might do this.

“If you remember, we said: one – we’ve got the basics right. We’ve rebuilt all of our processes and we’ve ticked that box. Two – we’ve focused on the quality of the portfolio so we’ve got more aggressive in the asset we have. We can now assess how far we’ve gone and do we need to do more?,” he said.

The other parts of the strategy about which investors will hear more is the firm’s marketing project in which it has attempted to sell its minerals to customers just as De Beers sells rough diamonds to the diamantaires.

“We’re doing at least 3% better on platinum and in some areas even a bit better than 3% depending on the nature of the contract,” said Cutifani.

This is not trading minerals better, or taking advantage of time and geography to arbitrage the price of the metal as Glencore has done over the years.

“We’re not Glencore. We can’t do what Glencore does … We’re delivering consistently to customers and we’re creating a different relationship that gives us some percentage points [on the price]. And it’s very different: it’s a marketing model as opposed to a trading or a sales model,” said Cutifani.

TONGUE-LASHING

Reflecting on last year’s results presentation, Cutifani acknowledged it was wrong of him to have reacted angrily at the when he was criticised for failing to see the steep decline in commodity prices.

Cutifani lashed out at analysts saying he hadn’t noticed many of them having predicted the price decline either. “I usually don’t get all that thin-skinned, but I was getting a bit frustrated in the conversation,” he said Cutifani. “It was the wrong response from me and I recognise that.

“I don’t think people recognise how much we did in 2015. But in many ways, I think we got too much credit for 2016,” he said.