London - Anglo American would either be successful at reorganising its platinum business and starting output at the Minas-Rio iron ore mine in Brazil or be acquired, research company Sanford C Bernstein said yesterday.
The metals producer is reviewing global assets to shore up earnings after chief executive Mark Cutifani took over last year amid cost overruns and delays at Minas-Rio. Cutifani set a goal of improving Anglo’s return on capital employed to at least 15 percent by 2016 from 8 percent last year.
“There is a free option on offer for Anglo,” Paul Gait, a London-based Bernstein analyst, said in a note. “Either the company outperforms under Mark Cutifani’s leadership, and demonstrates the value of tons in the ground, or it fails to do so and is put out of its misery in fairly short order.”
Anglo, which controls the largest platinum producer, has seen the output disrupted by a strike since January. The Association of Mineworkers and Construction Union (Amcu) has called out more than 70 000 miners, including employees at Anglo American Platinum.
Government-led talks on Monday failed to end the impasse.
Anglo planned to switch to mechanised open-pit platinum mining from labour-intensive underground excavation, Cutifani said in April.
The company, which is downsizing its platinum business, excluded the more mechanised Mogalakwena mine from the review.
“Successful implementation of this strategy could unlock billions of dollars of value for shareholders and mark a step change in the profitability of one of Anglo American’s biggest single commodity exposures,” Gait said.
Minas-Rio, which was scheduled to ship its first ore by the end of the year after $8.8 billion (R93.2bn) of capital expenditure, was 88 percent complete at the end of March and was projected to reach full annual capacity of 26.5 million tons in 2016.
“We believe that the fundamental basis of the value of any mining company is the quality of its geological endowment,” Gait said. “In this regard, Anglo American is on a scale comparable to Rio Tinto, yet has a market value two-thirds that of Rio.
“We believe that Cutifani is leading a change programme unprecedented in Anglo’s history. We think he is the right man to lead this change and see considerable upside to current stock valuation if the company can successfully execute on its restructuring efforts.”
Anglo shares lost 1.1 percent to close at R259.37 yesterday in Johannesburg. – Bloomberg