For years, Anglo has been the subject of takeover speculation and during the worst of the commodities crisis it seemed on the verge of a breakup. It spent last year getting back on firmer footing, but the £2 billion (R31.5 billion) investment by one-time Anglo suitor Agarwal has sparked the return of speculation about the company’s future.
“I’m pretty sure every investment banker in London is running around, dusting off old pitch books and going to every major in town,” Paul Gait, an analyst at Sanford C Bernstein in London, said. “This feels to me a little like the last cycle, when the first mover precipitated a round of consolidation.”
Agarwal’s strategy is still unclear, but $21 billion (R267 billion) Anglo has a vast collection of some of the best mining assets in the world. If the assets are split, it would represent the most significant change to the mining industry in years and likely attract rivals including Rio Tinto and Glencore.
Anglo shares slipped 0.5 percent to 1291 pence (R203.32) on Friday.
After a failed approach to merge Hindustan Zinc with Anglo last year, Agarwal said the combination was a “good match” and that “one and one wasn’t going to be two, but 11.” The Indian billionaire is known for running a complex web of commodity producers through a holding company, Volcan. It has a controlling stake in Vedanta Resources, which in turn controls Vedanta and Hindustan Zinc.
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The unusual deal that Agarwal structured to become Anglo’s second-biggest shareholder means the Indian mining tycoon is probably more interested in the assets, than betting on the share price, according to analysts including Amos Fletcher at Barclays.
Agarwal isn’t using his fortune to buy the shares. He’s borrowing from bond investors through a three-year note paying a coupon of 4.125 percent. The structure means he effectively rents the shares until the bond matures, with little benefit from a rising stock price.
“Agarwal is anticipating some sort of action,” said Jeremy Wrathall, head of mining research at Investec. “We’re certainly going to see a new merger and acquisition phase in the industry.”
Anglo’s chief executive Mark Cutifani told analysts that Anglo hasn’t spoken with Volcan, and would expect to interact with them as any other shareholder, according to a person present at a meeting on Thursday.
“Things are starting to turn and this will be a step in a medium-term play, which others are going to be watching very carefully,” said Raj Khatri, head of metals and mining for Europe at Macquarie Group in London.
Among the big miners, there’s a lot of appetite for high quality assets. Rio Tinto and BHP Billiton have publicly said they want more world-class copper mines. Rio chief executive Jean-Sebastien Jacques said in December that he’d be interested in diamond assets. Anglo American owns an 85 percent stake in De Beers.
Still, there are obvious hurdles to more consolidation. The mining industry is still recovering from a commodities crash of 2015, and investors may be unwilling to support any increase in debt needed for blockbuster deals.