Anglo Goes for Bold Breakup Plan in Move to Fend Off BHP

(Bloomberg) — Anglo American Plc will exit diamond, platinum and coal mining in a massive restructuring designed to fend off a £34 billion ($43 billion) bid from rival BHP Group and turn itself into a copper giant.

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Anglo’s hand was forced by BHP’s approach — which it has twice rejected — but the move also responds to pressure from shareholders to shed less profitable businesses and focus on the copper assets that are the envy of the industry. It leaves a much simpler company — and a potentially more attractive one to suitors.

The radical overhaul laid out by Anglo Chief Executive Officer Duncan Wanblad is to create a company much like the one his rival CEO Mike Henry proposed. As both men have a similar view of where value lies in Anglo’s sprawling empire, shareholders will now have to decide who they believe can best deliver.

Anglo is pinning its hopes on shareholders supporting its plan — and backing management to deliver it, rather than pushing to accept an offer from BHP. Investors see copper as the crown jewel because of its role in the energy transition and today’s move addresses what some of them were calling for. Activists Elliott Investment Management are among Anglo’s shareholders.

“There’s still a debate over whether this really offers shareholders more than BHP’s improved offer,” said Dawid Heyl, a Cape Town-based portfolio manager at Ninety One, a top shareholder. Heyl said that while it was a robust plan it would create a shrunken Anglo that “would be attractive to others as well.”

Anglo’s shares fell 2.5% to £26.38 in London trading, below the £27.53 that BHP is offering, in a sign investors see a lower chance of a successful BHP bid. Amplats, as the platinum business is known, fell as much as 10% in Johannesburg.

It’s now up to BHP to decide how to respond. Two offers have been rejected, though crucially its improved bid didn’t address one of the main obstacles: Anglo said BHP’s condition to spin off South African assets before the takeover was unworkable. Now Anglo is proposing to spin off Amplats, it could bolster BHP’s argument that it can be done.

“The outcome of Anglo’s strategic review will not have changed BHP’s plans, but they are probably actively assessing where they are now in light of this,” said Lachlan Shaw, an analyst from UBS Group AG.

Read More: What’s Anglo Worth? For Now It’s Less than the Sum of Its Parts

Anglo is now set to focus on copper mines and iron ore, its two biggest and most consistent earners and the businesses that BHP is most attracted to. Perhaps controversially, it will also stick with its Woodsmith fertilizer project in the north of England that some investors have pushed for it to quit. Still, it will dramatically cut spending there.

It will demerge or sell its De Beers diamond business, separate its Anglo American Platinum Ltd. unit and sell its coking coal mines in Australia.

The company will also either sell or shutter its relatively small nickel business in Brazil.

The move to dramatically shrink and simplify its business has been years in the making at Anglo, which has always been a hotchpotch of commodities. Yet the approach from BHP served as a catalyst for the company to speed up decisions it’s been sitting on for years.

Getting rid of Amplats and De Beers marks a turnaround from less than a decade ago when Wanblad’s predecessor planned on making them the cornerstones of the business.

Wanblad conceded today however that they are just too volatile. When they are good they are very good, but when they’re bad they drag down the entire company, hitting the returns shareholders get from the commodities they really covet such as copper. And the last year was especially tough for both.

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De Beers — despite its status as a trophy asset — has looked increasingly out of place within the Anglo stable. The diamond market has become increasing volatile in recent years, whipsawing between boom and bust. The challenges posed by changing consumer habits require more and more spending on things like advertising, an area outside the comfort zone of many mining investors.

It will break the almost 100-year link between the two companies, with Anglo first becoming a major shareholder in 1926. Sovereign wealth funds have in the past expressed interest in the storied diamond producer.

Anglo will also look to exit Amplats, as its platinum unit is called. The business is currently listed in South Africa, with Anglo as a majority owner. Its coking coal business, which lies adjacent to BHP’s mines, will also be sold and Anglo said it has already received approaches.

While Anglo’s new plan has similarities to the one proposed by BHP, Wanblad was keen to point out that they were not completely leaving South Africa. It will keep its Kumba iron ore subsidiary. BHP had wanted Anglo to shed the South African assets before the takeover.

“They make us do the work then off they go,” Wanblad said. “We remain in South Africa, that’s a unique difference between what we and BHP are proposing to do.”

That may have made a difference for South Africa’s government as the new plan has already received a warmer welcome than BHP’s proposal.

Read: South Africa Minister Warms to Anglo Plan After Opposing BHP Bid

Anglo will also slow spending on a $9 billion fertilizer mine in northern England that’s been a focal point for investors and analysts pushing for an overhaul.

The company — which has been spending about $1 billion a year on the giant Woodsmith mine — will cut spending to about $200 million in 2025, and plans to spend nothing on it in 2026. It will also look to bring in one or more strategic partners. Investors are worried the mine will produce a relatively obscure fertilizer product called polyhalite, and Anglo will need to create a huge new global market for it almost from scratch.

–With assistance from Mark Burton and Paul-Alain Hunt.

(Updates with details)

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Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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