How Anglo American turned into prey

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Duncan Wanblad took the helm of Anglo American in mid-2022 just as the South African miner reached a record market capitalisation of more than £50bn. Two years later, its larger rival BHP is offering to buy it for £20bn less.

The unsolicited move on Anglo — which it rebuffed on Friday as “highly unattractive” — comes at a moment of vulnerability for one of the largest FTSE 100 companies, whose byzantine corporate structure and conservative culture have been misfiring since Wanblad became chief executive.

In December the 107-year-old group suffered its worst one-day share price fall since 2008 after revising down its copper production forecast by 20 per cent. The metal was supposed to be a key growth engine — and predators took notice.

“Big mining companies like BHP don’t often show their hand in this way, but it tells you just how weak Anglo is right now,” said Dawid Heyl, portfolio manager at NinetyOne, an Anglo shareholder.

Anglo American is one of the mining industry’s most storied names with its history stretching back to 1917 when German-born financier Ernest Oppenheimer started gold mines in the boomtown of Johannesburg. A century later the group is the world’s largest producer of platinum and operates some of the world’s highest-quality copper mines in Chile and Peru. It also owns the De Beers diamond group.

At the end of apartheid in South Africa, Anglo American controlled about 40 per cent of private industry in the country, from newspapers to vineyards. It shifted its main listing and head office to London in 1999 through a merger with Minorco to tap a more global pool of investors.

Anglo American corporate structure

In the 2000s, industry competitors such as Australian groups BHP and Rio Tinto seized on China’s rising appetite for commodities, making bumper profits from the iron ore that fed the country’s steel industry.

At the same time, Anglo was spinning off gold mining operations, bought a buildings material business and split with Mondi, a paper company. In 2015, strained by a heavy debt load, the South African miner was on its knees. Then-CEO Mark Cutifani cut 70,000 jobs. He contemplated selling or spinning off everything from Kumba Iron Ore and platinum mines in South Africa to Australian coal to restore the mining group’s fortunes.

“About two or three years ago, it was back in everyone’s good graces and the generalist investors’ favourite under Mark Cutifani,” said Ben Davis, an analyst at Liberum.

Anglo’s health deteriorated again under Wanblad. The decline has been partly outside of his control: he was confronting challenges ranging from failing South African infrastructure and slumping platinum and diamond prices to the fallout from his predecessor’s over-optimistic assumptions on the impact of new technology on production.

“There is no doubt that South Africa’s overall economic performance and continuously rising country risk has led to companies suffering from what is called a South African discount”, said Claude de Baissac, CEO of Johannesburg-based advisory firm Eunomix, who has previously acted as a consultant to the mining company.

But shareholders blame Wanblad for the negative cash flow that has resulted from the acquisition of the vast $9bn Woodsmith mine in Yorkshire in the north of England and its perseverance with the project that will produce a new kind of fertiliser for an untested market.

Duncan Wanblad, chief executive officer of Anglo American
Selling Anglo diamond and platinum assets when commodity prices are at their lowest point would be inadvisable, CEO Duncan Wanblad has argued © Dwayne Senior/Bloomberg

The group, once again, is in crisis, telling investors that it is undertaking a strategic review of its most troubled assets. These include De Beers, its platinum division and its metallurgical coal mines.

While a reshaping of Anglo’s portfolio has been touted for decades — and Wanblad has insisted “there are no sacred cows” in the company’s portfolio — execution has been slow. Selling diamond and platinum mines when commodity prices are at their lowest point would be inadvisable, Wanblad has argued.

“What I am resistant to doing is making asset sales at the wrong time in the cycle,” he said in an interview in February.

The company’s conservative culture, long history and resistance to change have provide other obstacles.

“The history of Anglo has made it difficult for fundamental change,” said veteran mining industry watcher Jamie Strauss, who runs ESG assurance provider Digbee. Wanblad “was trying to set up something for a five- or six-year period to build on but the reality is people lost confidence in him as a result of that.”

Anglo has faced troubled times before but has never undergone a sweeping overhaul. In 2012, chief executive Cynthia Carroll resigned under shareholder pressure to split up the company following strikes that crippled its South African platinum operations.

Cutifani came closer to a decisive reshaping in 2015, as a rout in commodities price and worries over debt sent the group’s shares plunging to record lows. He sought to cut assets by 60 per cent and, again, tried to reduce its footprint in South Africa. But a large part of those plans were mothballed when commodities prices and its stock recovered.

“They are a curious product of the modern economic history of South Africa. It’s not how you would design a mining company for the next 100 years,” said one person close to BHP. “They spend a lot of time defending the way things have always been and the status quo.”

“We will see more talk, less action on the strategic options,” concurs Davis at Liberum.

Others are hopeful this time is different. BHP’s approach — and US hedge fund Elliott taking a $1bn stake in Anglo, disclosed on Friday — “might just be the catalyst needed to ultimately push management in the direction of a break-up”, said Berenberg analyst Richard Hatch.

https://www.highcpmgate.com/f0c2i8ki?key=d7778888e3d5721fde608bfdb62fd997

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