Anglo American has a job to exit post-BHP hole
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Karen Kwok
LONDON, July 25 (Reuters Breakingviews) -Duncan Wanblad’s job is not getting any easier. Two months after fending off Australian rival BHP’s BHP.AX $47 billion approach, the Anglo American AAL.L boss on Thursday delivered a decent set of half-year results. But a fire at one of Anglo’s prized steelmaking coal mines, and ongoing diamond problems, are cutting across something investors care more about: the group’s self-help plan.
The London-listed miner on Thursday reported $5 billion of EBITDA for the six months to the end of June, better than analysts’ estimates polled by Visible Alpha. Most of that was driven by iron ore and copper, with the latter churning out a 53% EBITDA margin, relative to 43% in the same period in 2023. But investors ought to be more focused on Wanblad's plan to sell or spin off assets including steelmaking coal, diamond, nickel and platinum, announced on May 14, and intended to persuade shareholders not to accept BHP’s offer. It’s not going that well.
A sale of the coal business is supposed to be the easiest part: the mineral remains integral to the steelmaking process, even if that’s no longer the case for electricity generation. A June 29 fire and explosion in the Grosvenor mine in Australia, which makes up a third of the valuation of Anglo’s steelmaking coal division according to Jefferies, has left a mess that is still being repaired. Wanblad said on Thursday he remained committed to selling the unit by early 2025, but given the uncertainty, potential buyers could ask for a discount, or only buy part of the portfolio. Analysts estimate the coal business could churn out over $970 million of EBITDA in 2025, polled by Visible Alpha. On the 3.8 times multiple of peers like Stanmore SMR.AX and Arch ARCH.N, it could be worth $3.7 billion – compared to previous hopes of $5 billion.
Wanblad may have to compromise on diamonds too. With supplies continuing to outstrip demand, Anglo announced a further cut in its De Beers’ 2024 production guidance to 23 to 26 metric carats from the previous 26 to 29 range. It’s uncertain whether the diamond market will see a material recovery by next year. A time-pressured sale would risk the unit being valued at the lower end of an eye-catchingly wide $3 billion to $7 billion range.
At the bottom of these valuation ranges for coal and diamonds, Anglo’s equity is worth roughly in line with BHP’s last $47 billion bid, according to a Breakingviews sum of the parts. As of Thursday, Anglo American shares also traded back to where they were before BHP’s interest emerged on April 25. If investors start to doubt Wanblad’s self-help plan, they may be more receptive to a return bid from BHP when that becomes possible again in December.
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CONTEXT NEWS
Anglo American on July 25 took a further $1.6 billion writedown on its fertiliser project in Britain as it takes more steps to cut costs after making a loss of $672 million in the first half.
The miner posted underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $5 billion for the six months to June 30, down from $5.1 billion a year earlier but above the $4.6 billion seen in an analysts’ consensus estimate.
Anglo cut its output guidance for steelmaking coal to between 14 million tons and 15.5 million tons from 15 to 17 million tons previously, as it battles an underground fire at its Grosvenor coal mine in Australia that started on June 29.
As of 0812 GMT, Anglo shares were trading at 22.01 pounds, down 0.9%.
Graphic: Anglo shares have fallen back to around their pre-BHP level https://reut.rs/3Wmsc2a
Editing by George Hay and Oliver Taslic
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