IN a battle between the two giants, Australia’s BHP says it can reverse a losing trend at Anglo American. But Russia’s eventual return to the market could send prices crashing.
by AKANI CHAUKE
JOHANNESBURG, (CAJ News) – AN attempted buyout of Anglo American by Australia’s biggest company has forced the African mining giant to consider selling some of its assets, revealing a possible weakness in a brand that has been a household name in South Africa since the 1920s.
BHP, named for the mining town of Broken Hill west of Sydney has operations on all six continents. The company has made two offers above the market price for the shares, but Anglo CEO Duncan Wanblad turned down both deals.
The total price of just under $43m confirmed by BHP exceeds the GDP of Botswana and Namibia combined — Anglo has operations in both countries — but Mr. Wanblad said it still undervalues the company and its future earnings.
Anglo announced a 94% fall in its 2023 profit compared with the previous year and BHP has outlined a strategy to reverse this should they manage to buy the company.
RUSSIAN STOCKPILE
Ironically, it is the sanctions against Russia that pose the greatest risk to mining firms. When the fighting in Ukraine finally ends and the embargo is lifted, Moscow will be sitting on a massive stockpile of gems and minerals. The cost of the war has put the economy under pressure, and a need for cash may force the Kremlin to sell what it has in the shortest possible time, leading to oversupply and a crash in the market.
A shock of that scale will affect all but the most cashed-up companies, another reason analysts say BHP’s union with Anglo would leave both parties better prepared.
South Africa has 70% of the world’s known platinum deposits and Anglo is biggest of the four miners who dominate the sector. But the price of the metal is notoriously unstable, moving between $900 and $1100 per ounce with little notice. This has made it difficult for investors to expand their operations or buy new equipment, never sure what their returns might be in the coming months.
In the decade to 2010, the metal quadrupled in price to peak above $2000 and there was a rush to open new mines, but the boom didn’t last. Russia is the second largest producer (12%), and when UN sanctions were imposed following the 2022 invasion of Ukraine, there was speculation that the price might again rocket. It did not.
BLUEPRINT FOR SURVIVAL
BHP says it would sell Anglo’s under-performing assets including the platinum mines and possibly spin off the profitable Kumba Iron Ore, the world’s largest iron producer, with operations at Shisen, Thabazimbi and other sites in South Africa.
This blueprint to rationalise the company was rejected, but within days Mr. Wanblad released his board’s own plan to lift cash flow, with a strategy almost identical to that proposed by BHP.
Analysts say there’s a synergy to be had in combining the two giants at a time when China, Russia and Brazil are pushing into Africa. By sharing know-how, trucking fleets, and collaborating in the search for new deposits, there would be savings and a potential-boost in profit for both entities, but especially for Anglo which has slipped from its high-earning days of the past.
The approach appears to have taken the Anglo American board by surprise while BHP has clearly done its homework over time, finding weaknesses it says would not be difficult to put right.
This is not an easy time for mining. Environmental concerns are raised by groups opposed to expansion, and there is political instability in parts of West Africa and Latin America that can make banks nervous when it comes to funding. And while copper and gold have been rising in price, diamonds are under pressure from laboratory made gems that sell for less.
For now, Anglo American is standing by its decision not to sell but BHP is known for its tenacity and seems unlikely to back away, even if it has to bide its time.
– CAJ News