Anglo’s angling for steel listing

[] — AT $932m, Anglo American got a more-than-decent price for its non-core offshore steel business Moly-Cop and AltaSteel, assets that comprise about 51% of total production of Scaw Metals. The remainder of Scaw, the South African-based assets, may be more difficult to dispatch, however.

Anglo is selling Scaw as part of a divestment strategy the aim of which is to create a tightly focused mining business, and to reduce net debt. Provided Anglo’s divestment of Scaw’s offshore assets passes muster with the Canadian and Australian antitrust authorities, the group’s net debt will be about $9.6bn, while net gearing a highly manageable 24%.

The problem with the rump of Scaw, however, is that it’s less tasty than the international assets which were sold at a premium.

Firstly, Scaw has a 26% empowerment structure which investors may view as cumbrous and unattractive. What price do you pay for an asset you don’t completely control.

Secondly, steel businesses in South Africa are struggling.

Just ask Murray & Roberts which is trying to sell a steel business of its own, or ArcelorMittal SA (Amsa) which is claiming an even moderate increase in iron ore prices will imperil its Saldanha Steel operation. The other major steelmaker, Evraz Highveld Steel & Vanadium, produced a R138m interim loss in August.

As a result, analysts believe Anglo may seek a different means of getting maximum value for the South African steel assets, possibly through a listing. Given the offer for Moly-Cop and AltaSteel, the entire Scaw Metals business would be valued at $1.8bn (R12.72bn). Since the South African arm of the business was about 44% of total revenue, this puts a value of between R6bn and R7bn on a South African steel listing.

Anglo says it has no interest in taking the steel business public. Analysts counter, however, that Anglo would be loathe to acknowledge it was actually struggling to sell Scaw Metals by conceding it was mulling a listing on the JSE.

All in all, investors would probably view a new steel listing with some interest especially as government is trying to have locally produced iron ore discounted in order to keep South African steel prices competitive.