Anglo hauls out the sabre

[] — THE suggestion last week that Anglo American could walk away from the proposed multi-billion rand restructuring of Kumba Resources looks like a case of time-honoured sabre-rattling. The transaction, which creates two separately listed companies – Exarro and Sishen Iron Ore – took the best part of two years and 41 iterations to complete.

The outcome was the creation of a coal and base metals company – Exxaro – that is fully empowered and has the highly regarded Sipho Nkosi as its CEO in waiting. Con Fauconnier, former CEO of Kumba Resources, is taking the reins first, however.

Quitting the deal was, however, raised by Philip Baum, an Anglo American director at a recent Competition Tribunal hearing. The hearing was convened to investigation recommendations by the Competition Commission that the Kumba Resources restructuring proceed on condition Anglo directors were not appointed to board of Exxaro. The Competition Commission believes there a risk that Exxaro and Anglo could collude on coal prices, for instance.

Baum finds the suggestion that Anglo leave Exxaro to its own devices difficult to accept. In a Business Day article, which reported Baum’s comments to the tribunal, Baum said the commission had heightened the risk of the transaction failing.

The comment was intriguingly ambivalent. Does Baum mean Exxaro might not acquit itself as well with a board sans Anglo? Or is he suggesting the transaction is imperiled?

In uncommonly candid terms, Baum said: “We have failed in some earlier black economic empowerment transactions and been criticised for it, and we are determined to see this one succeed,’ he said. It was Anglo, for instance, that watched as Mzi Khumalo and Brett Kebble fought over the soul of JCI, a company begat by Anglo.

Anglo spokesperson, Anne Dunn, said the group was not offering further comments. But Coronation Asset Management analyst, Henk Groenewald, suggests the stakes are too high for Anglo to quit the deal. “It’s clear an empowerment deal needs to happen. Some sort of deal will go ahead,’ he says.

Baum personally shared in the travail of the proposed Exxaro/Sishen Iron Ore creation. He also knows how Anglo first attempted to seize Kumba Resources for its iron ore assets, taking a 67% stake in the company before the South African government ordered it to back off.

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The creation of two separately listed companies, of which one is black controlled, was an elegant outcome that Baum would be chary of destroying. There is a risk, however, that Anglo could be forced to restructure the creation of Exxaro.

Says Con Fauconnier, the CEO elect for Exxaro: “It’s a huge transaction and you don’t willy-nilly walk away from it on the basis of a technicality.’

“We’d view Anglo’s involvement in Exxaro as a significant benefit from a business angle and an transformation point of view,” he said.