Johannesburg - Mergers and acquisitions in the mining industry would probably be bolstered among junior players this year as financially stressed companies put up assets for sale, but the legislative environment could avert foreign investors, analysts said.
Diversified global mining company, Anglo American, on Monday announced a major revamp of its portfolio that would see it dump coal and iron ore assets in a bid to reduce debt.
Peter Major, a mining analyst at Cadiz Corporate Solutions, said Anglo’s South African assets were unlikely to be acquired by foreign firms.
Major said potential buyers could be government-backed aspiring black economic empowerment industrialists.
“If Anglo is leaving South Africa it is hard to believe a foreign firm is going to buy their assets”, Major said.
Bleeding
“Anglo is bleeding profusely on a lot of their assets in this country. So even if they get small money up front and maybe more later from the sales – their main priority right now is to stop the bleeding.
“Commodity prices on the whole are not ‘that bad’. And their debt, though large – could be managed if they weren’t bleeding cash. But the biggest hindrance – and most irreversible of all – is the enormous and continuing growth of antimining legislation, rhetoric, politicisation and ideology that is killing the mining industry in South Africa today.”
Sibanye Gold, which has recently bought Anglo American Platinum’s Rustenburg operations, was a potential buyer for Anglo’s coal assets if they offered value.
Sibanye spokesman James Wellsted said the company was in a solid position to move into Anglo’s coal assets, only if they offered good value.
“It is very early days. Anglo suggested they are selling their assets. We are in a solid position in that we have a strong balance sheet and cash flow from our gold operations,” Wellsted said.
“Any acquisition has to be in line with our dividend policy and has to add value of shareholders.”
Wellsted said Sibanye was moving into coal having acquired a 51 percent stake in the Waterberg Coal Group last year and was conducting a due diligence into the viability of the asset.
A spokesperson for Oakbay Investments, which formed Tegeta Exploration and Resources and is linked to the Gupta family, said it was not in talks with Anglo.
Simon Venables, PwC’s Africa corporate finance leader, said there had been an increasing trend of global entities exiting the bulk commodity sector.
He said this would drive merger and acquisition (M&A) deal activity, in particular if local buyers were able to successfully acquire and fund these assets.
“Foreign investors and acquirers may also feature and this could also add to M&A activity, especially if empowerment or local partnerships and local equity participation are required,” Venables said.
Wickus Botha, EY’s Africa mining and metals leader, said he expected more M&As in the next 12 to 18 months. “The appetite for mergers and acquisitions has been there for the past two years. We found that valuation gap has narrowed.”
He said in South Africa a number of companies had low levels of debt. “That means these companies are well positioned to buy the assets.”
BUSINESS REPORT