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There is growing talk that FTSE 100 miner Anglo American (AAL) is trying to demerge or sell its South African coal and iron ore businesses. It has already announced plans to focus primarily on diamonds, platinum and copper.
Anglo’s share price has risen 284% year to date thanks to improving commodity prices and a reduction in the miner’s costs. ‘A restructuring for Anglo could lead to further near-term upside to the share price,’ says investment bank Jefferies. The question is whether it can pull off such a move.
The South African assets are worth $3.2bn but Anglo may only get $2bn or so from an outright sale, given it is seen as a desperate seller in order to repair its balance sheet.
At the start of 2016 it targeted $3bn to $4bn of asset disposals this year, but has only so far got $1.7bn for the niobium and phosphates business.
A spin-off could unlock value, depending on structure and valuation says Jefferies. It isn’t entirely convinced that the assets can be sold
and worries about valuation if Anglo opts for a demerger.
We’re inclined to agree that a corporate shake-up of the business won’t be easy to achieve – otherwise it would have already happened.
BHP’s decision to spin off non-core assets into the vehicle now known as South32 (S32) didn’t seem too wise when the latter’s share price more than halved in the six months following the demerger in 2015.
However, South32 has outperformed its former parent this year thanks to the surprise recovery in coal prices – one of its key commodities. (DC)
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