[miningmx.com] — SHARES in Anglo American have gained 18% in the
last three months, a promising sign for the UK-listed group that has, for years, been
the ugly duckling among the elegant swans of BHP Billiton and Rio Tinto.
On a relative basis, however, Anglo’s performance has been bettered by BHP Billiton
since June, and sentiment continues to be against Anglo, probably owing to its South
African exposure, whereas BHP Billiton has all but divested from the country bar its
coal and manganese assets. It was instructive, for instance, that there were calls for
the resignation of Cynthia Carroll, Anglo CEO, but not for her opposite number, Marius
Kloppers, at BHP Billiton, even though the latter was forced to write-down its US shale
gas assets for $2.84bn.
But fortunes, and perhaps sentiment, could be changing for Anglo, a share that has
been called a buy for nigh on two years without much investor support for the notion.
The optimism is based on the fact that in the last month, Anglo has been able to
resolve two “bones of contention’ that have weighed heavily on its prospects, already
troubled by sector concerns the slowdown in China’s growth had weakened an
important underpin to commodities.
One was the legal dispute between Anglo and Chile’s state-owned mining company,
Codelco. In essence, the argument was over option rights of Codelco to a stake in
assets, including Anglo’s Los Bronces, an important copper mine for Anglo in Chile. An
extended legal battle, ultimately with the Chilean government, was threatened until
the two sides in August shook hands on a compromise in August. It was a case of
sanity prevailing.
The second was last week’s approval from the Brazilian government regarding
building the proposed $5.8bn, 26.5Mtpa million tonne/year iron ore mine, Minas Rio.
The project has been hit by lengthy delays relating to licence applications and
regulatory clearances, resulting in capital cost escalations. In fact, Minas Rio has
twice seen significant capital increases from when it was first bought in 2007 for
$2.7bn.
The latest headwind was an injunction in March that the mine was too close to
archaelogical diggings. Happily, the injunction was lifted on September 14, allowing
Anglo to resume the mine’s critical path to development. There are still other licence
applications pending, but these are not deemed to be critical to mine development;
not yet anyway.
“Cynthia has got two of three monkeys off her back,’ says Peter Major, an analyst for
Cadiz Corporate Solutions. “She’s had a tough year,’ adding that on a relative price
basis, Anglo is worth buying. “But then I would buy all mining stocks presently as they
are trading at 100-year lows,’ says Major.
It’s the third issue in Anglo’s life that is the thorniest, however. This is the question of
how to restore Anglo American Platinum (Amplats), the company’s 85%-held listed
subsidiary, to levels of profitability that will make worthwhile the problems of holding
such an asset, geared as it is to developments in South Africa’s troubled political and
labour life.
Anglo announced earlier this year that it intended to conduct a review of Amplats’
assets. Set against violent labour unrest in the sector, however, a review involving
shutdowns and job losses is a hot potato for Amplats’ new CEO, Chris Griffith. But is
the problem intractable, or is it an opportunity, as some analysts have suggested?
“It may just work in Amplats’ favour,’ says Des Kilalea, an analyst for RBC Capital
Markets. “I think that during the strike process, Government has realised that it’s
losing money [R3bn to R4.5bn in lost taxation is one estimate].’
The implication is that on the proviso, Amplats accepted an increase in miner wages –
taking overall labour costs from about 60% of total costs to 63% – then Amplats
might just be able to trim its high-margin production without the kind of strident or
menacing opposition that currently prevails in the sector. Certainly, the strikes have
given fresh importance to the need to protect the long-term health of a platinum
sector that contributes to the tax-take.
Another analyst said that Amplats’ decision two weeks ago to send workers home
from its shafts in the Rustenburg area was probably a reflection of the kind of
restructuring it would ultimately like to do. “If they could just shut down Rustenburg,
take about 200 ,000 oz/year out of the system, that’s what Anglo would like to do,’ he
said.
– Finweek
