LONDON—Anglo American PLC Chief Executive Mark Cutifani is
racing to sell a set of Australian coal mines, a move that would
show investors he's delivering on promises to unload most of
Anglo's assets and more than half of its employees.
Mr. Cutifani is trying to transform one of the world's most
diversified miners—which digs for minerals including South African
iron ore, Colombian coal and Chilean copper—into a leaner operation
focused on copper, diamonds and platinum. The storied 99-year-old
company, founded in South Africa by Ernest Oppenheimer, plans to
reduce its mining businesses to 16 from 45 and exit coal, which
accounted for about one third of its 2015 "underlying" earnings,
which exclude one-off items such as accounting write-downs.
Pressure is mounting. A recent commodity-price rebound has
raised shareholders' expectations for how much Anglo should get for
the unwanted properties. Investors could lose patience if it takes
too long to retrench.
"It is a crunch year" for Mr. Cutifani, said Patrice Rassou,
head of equities at South Africa's Sanlam Investment Management and
an Anglo investor. Mr. Cutifani has restructured some of Anglo's
businesses, such as platinum, but there is still much progress to
be made in other areas, he said.
Mr. Cutifani agrees. "The pressure is on management, and if they
don't act, there will be consequences," he said in February.
Investors will get a progress report Thursday with Anglo's
first-half earnings announcement. A survey of six analysts forecast
"underlying net profit" of $340 million in the first half of 2016
compared with $904 million a year earlier.
The CEO could mollify investors with an in-the-works Australian
coal deal. Anglo, which owns 88% of the coal assets on the block,
attracted more bidders than it originally expected, people familiar
with the discussions said. The mines could fetch $1.5 billion to
$1.8 billion, higher than the $1.2 billion expected earlier this
year, they said.
Bidding is ongoing, they added. Anglo officials have said they
had hoped to reach a deal before this week's earnings release, but
tight negotiations and a brief production delay at one mine are
likely to push talks into August, the people said.
BHP Billiton Ltd., which owns similar mines nearby, U.S.
private-equity firm AMCI Group, New York private-equity giant
Apollo Group Management LLC and Swiss miner and trader Glencore PLC
have expressed interest in Anglo's mines, which produce coal for
steelmaking, people familiar with the deal discussions said.
Spokesmen for the companies declined to comment. AMCI didn't
respond to a request for comment.
If Anglo can't seal a deal or doesn't get a price investors
like, it could shake investors' confidence in Mr. Cutifani's
ability to pull off his turnaround.
Earlier this year, Anglo sold its niobium and phosphates
businesses for $1.5 billion, higher than earlier targets. In
February, Anglo said it expected to sell $3 billion to $4 billion
in assets this year.
The sale of the coal, niobium and phosphate assets, combined
with free cash flow and other factors, would bring Anglo toward its
goal of bringing net debt below $10 billion by year-end from $12.9
billion at the end of 2015.
Anglo's stock has risen 160% this year as rising commodities
prices lifted the industry. But some analysts and executives say
the rally could end if Chinese demand slumps. At a February
conference, Mr. Cutifani said commodity prices "may still get worse
before they get better."
Anglo also could struggle selling money-losing assets including
South African coal mines that sell to the country's power utility
Eskom Holdings Ltd. In June, Eskom said coal from an Anglo mine
costs "more than double" Eskom's average cost. An Eskom executive
said the utility would look for alternative coal sources.
"We are continuing to engage directly with Eskom," Anglo
spokesman James Wyatt-Tilby said.
Coal for power stations has come under pressure from natural gas
and concerns about global warming.
Investors who like Anglo's global portfolio have also questioned
Mr. Cutifani's decision to exit Australian coal. "He has
implemented some rash and rushed decisions by wanting to sell the
coal operations," said Stephen Arthur of South Africa's Absa Asset
Management.
Down the line, Mr. Cutifani faces a tough decision on whether to
sell or spin off Anglo's majority stake in giant Kumba Iron Ore
Ltd., a South African iron-ore business. Anglo's 70% stake in the
company is valued at about $2 billion.
Perhaps the biggest question mark for Anglo is what Mr. Cutifani
plans to do with the company's ill-fated $13 billion Brazilian
iron-ore project, Minas Rio, which has racked up more than $10
billion write-downs. Mr. Cutifani has said the company could weigh
a sale of Minas Rio in two or three years.
Given today's volatile commodity markets, it isn't clear
investors will remain patient enough to wait that long.
Write to Scott Patterson at scott.patterson@wsj.com and Alex
MacDonald at alex.macdonald@wsj.com
(END) Dow Jones Newswires
July 26, 2016 08:35 ET (12:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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