THE perceived regulatory and social risks of South Africa used to weigh heavily on Anglo American’s investment rating.
Known as the ‘South African discount’, Anglo executives were regularly asked whether demerging its listed subsidiaries Amplats and Kumba Iron Ore were on the cards. Even in times of plenty, such as in 2019 when South Africa comprised more than 60% of Anglo’s Ebitda, the sentiment prevailed, albeit in the background.
In the aftermath of Anglo’s restructuring, in which the group has demerged Amplats and is to sell De Beers (and with it the Venetia diamond mine in South Africa), the South African contribution to Ebitda is vastly diminished, to about 15% to 20% in rough terms.
Now, however, the South African assets in Anglo ahead of its merger with Teck Resources, which is due to be completed this year, bring an option value. That’s because Anglo’s 40% stake in the Samancor Joint Venture and 69.7% in Kumba consists of production and major manganese and iron ore mineral reserves.
The rider to this is that rail and port infrastructure development must progress in order to catalyse expansion potential of these mineral fields.
“I would say that opens up more optionality in the Northern Cape specifically, if Transnet can get back to the levels of rail availability that we have embedded in the current contract,” said Duncan Wanblad, CEO of Anglo American in an interview in February.
“Even though it’s slow [rail and port reform], even though it takes time to get back to where it was a few years ago, it does create and open up that optionality even more.”
There’s already evidence Anglo sees expansion opportunity in the Northern Cape. On February 19, Kumba Iron Ore said it had identified 293 million tons of additional metal at two farms at its Kolomela mine, as well as options to expand its existing base at the larger mine, the nearby Sishen. “This is only a fraction of the addition to our mineral endowment from a resources perspective,” Kumba CEO Mpumi Zikalala said in an interview.
“One would think that after so many years of iron ore mining in the Northern Cape, we wouldn’t be able to make such finds,” she said.
“But what’s interesting is that as our geologists continue doing the work – and we are clearly funding this from an exploration perspective – we’ve been able to add to both our resources and convert them into reserves, and keep extending the mine lives.”
It’s not surprising, therefore, that for the past 17 or 18 years, the life of mine at Kumba’s properties has always been 14-15 years.
Wanblad says Anglo has no interest in selling the group’s 40% stake in the Samancor joint venture. Manganese production is worth about 2Mt on an unattributable basis and though it forms a minor part of Anglo Teck, South Africa controls 70%-80% of total world ore resources. The strategic value of the manganese, used in steelmaking but with potential for battery use, is clear to see.
“It is a wonderful option in our portfolio,” said Wanblad of manganese in general (the group also owns Australian assets).
“The Kalahari, if you’re going to be in manganese, is probably the most important basin in the world – not because of quality, but because of pure size,” said South32 CEO Graham Kerr. “Having a footprint in that market is important, but it’s tough in South Africa because you get battered by things, such as what’s going on with Transnet in terms of reliable cheap access to ports.
“That’s a challenge for us … but I also don’t think we’re an active divester.”
There’s been speculation since Exxaro Resources announced the purchase of Ntsimbintle Holdings’s stake in the Tshipi manganese mine that the region’s diverse field of producers could be consolidated, if only because fewer producers could capitalise on scarce port and rail facilities. Kerr won’t commit South32 to the role of consolidator, however. In any event, South32 and Anglo are joined at the hip.
Under the umbrella agreement between them, the joint venture parties need each party’s approval. If one decides to sell, they must sell together. “So it’s quite a tightly structured agreement,” said Kerr. “Anglo’s been a great partner. It’s not a seller. We know that, and we’re probably not looking to sell off either.”
Similarly, they need to work as one if consolidation is planned, which it isn’t currently.
That, though, turns on improved Transnet performance. While the mining sector is hoping to participate in the utility’s operational performance, it needs government to step up.
