By Scott Patterson
LONDON-- Anil Agarwal began his career as a metals dealer in
India nearly 50 years ago. Today, he is a billionaire making one of
the biggest bets on the global mining industry's recovery.
The chairman of India's Vedanta Resources PLC has used a family
trust to invest almost $4.5 billion in Anglo American PLC this
year, taking control of about 20% of the U.K. mining giant. Along
with his controlling ownership of about $2.1 billion in his own
company, the stake vaults Mr. Agarwal into a rarefied group of
mining investors.
Among individuals, Mr. Agarwal's bet rivals that of Glencore PLC
Chief Executive Ivan Glasenberg, whose shares in his own company
are worth about $5.9 billion--one of the largest personal stakes in
a mining company. Big institutional investors like BlackRock Inc.
also have significant stakes in a range of companies, including BHP
Billiton PLC and Rio Tinto PLC.
"As an individual, this is a huge position in mining," said Paul
Gait, a mining analyst at Sanford C. Bernstein. Mr. Agarwal and a
spokesman for Anglo American declined to comment.
Mr. Agarwal's roughly $6.6 billion position in two large mining
companies comes amid a broad turnaround in the sector, fueled by
demand in China, which consumes about half of most of the world's
major commodities. Prices for copper, iron ore, coal and other
materials have clocked double-digit increases, luring back many
investors who fled mining stocks in 2015. BlackRock's world mining
trust has more than doubled in size since January 2016.
Mr. Agarwal, 65 years old, got his start in commodities in the
late 1960s, dropping out of school to work as a metals investor in
Mumbai, which was then known as Bombay. Seven years later, he
founded copper maker Sterlite Industries. In 2003, Vedanta
Resources, majority-owner of Sterlite, became the first Indian
company to list on the London Stock Exchange.
But until now, Mr. Agarwal hadn't been seen as a major player
outside of India, where he is perhaps best known for pledging to
give away 75% of his family's wealth to charity. But even there,
Mr. Agarwal tends to keep a low profile. He spends much of his time
in London.
That relative anonymity has left investors and analysts
wondering what Mr. Agarwal plans to do with his stake in Anglo
American, a mining icon founded by diamond and gold magnate Ernest
Oppenheimer a century ago.
"At this point, I don't think anybody knows," said RBC capital
analyst Tyler Broda.
Some say the billionaire could simply be looking for more
exposure to the commodity industry's recovery.
Anglo American returned to profit in 2017 after years of losses
and surprised investors by reinstating a dividend it had slashed in
2015 during a gut-wrenching commodity-price slump. Last Thursday,
the company's share price hit a three-year high, closing up 17%
since March, when Mr. Agarwal announced his first series of Anglo
investments. On Tuesday, its stock closed at GBP14.42 in
London.
Mr. Agarwal has said in the past he isn't interested in taking
over Anglo or forcing a merger with Vedanta.
Analysts have pointed to Anglo American's South African coal,
iron ore and platinum assets as one potential motivation for Mr.
Agarwal's investment.
Most of Vedanta's business is located in India, where its
companies mine coal and iron ore, among other things. But it also
has assets in South Africa, as well as Zambia, Namibia, Australia
and Ireland. Any sale of Anglo's assets could be attractive for Mr.
Agarwal, said Mr. Broda, of RBC.
"If you were to see Anglo with South Africa broken out, perhaps
this is a way of getting a foothold in that conversation," he
said.
Adding to the speculation: In 2015, Vedanta hired former Anglo
American CEO Cynthia Carroll to work on long-term strategy.
Behind some of the confusion over Mr. Agarwal's intentions lies
the complex structure of his investment, which was arranged by J.P.
Morgan Chase.
Mr. Agarwal's family trust, Volcan Investments Ltd., will issue
bonds to investors that can later be converted into shares with a
yield of about 4%. Volcan will use the cash from the investment to
purchase shares in Anglo, which bond investors can collect in about
three years.
The deal's structure puts a three-year limit on Mr. Agarwal's
shareholdings. It also caps how much Volcan can win or lose from
its holdings.
Mr. Agarwal is "clearly trying to buy himself a seat at the
table" at Anglo, said Mr. Gait, of Bernstein. "But can he force
something here? That is a much harder proposition given the
structure."
Some investors are hoping Mr. Agarwal will shake things up.
"A large shareholder of this type to rock the boat and put more
pressure on Anglo's management can't be a bad thing," said Anthony
Sedgwick, fund manager at Anglo investor Abax Investments in South
Africa.
Write to Scott Patterson at scott.patterson@wsj.com
(END) Dow Jones Newswires
October 12, 2017 07:14 ET (11:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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