Anglo American eyes demerger option of its coal business
JOHANNESBURG - ANGLO American said yesterday that the demerger of its South African thermal coal business was the top option towards executing plans to exit the business, although a trade sale would also be considered as it announced lower production due to Covid-19 disruptions during the year ended December 2020.
During a presentation of the group’s 2020 financial results, chief executive Mark Cutifani said the demerger option was the straightest line, but people were putting their hands up for a trade sale.
“We are giving those inquiries due and proper consideration.
“My best guess is that a demerger is most likely, but I would not rule out a trade sale if it addresses the right issues, if it gives us comfort that the business will be operated appropriately for the betterment of South Africa’s people, customers and environmentally in the right way,” Cutifani said.
Cutifani said the group expected to complete the exit from the thermal coal operations by next year.
“If we continue on down the demerger route you could quite easily see us coming out publicly during the course of this year.
“The only reason I am being a bit careful is, if there is a trade sale offer that we have to think hard about, it might take a bit longer.”
Last March Anglo American confirmed its plans to work towards an exit from its remaining thermal coal operations in South Africa, with a demerger being its likely preferred exit option, with a primary listing on the JSE for the demerged business.
The group said yesterday that Covid-19 lockdowns across Southern Africa in the first half 2020 had impacted production at Platinum Group Metals (PGMs), Kumba Iron Ore, De Beers and Thermal Coal.
Refined production of PGMs at Anglo American Platinum was also knocked by an outage at the converter plant in the first half, while operational issues at Grosvenor Metallurgical Coal in Australia and strike action at the Cerrejón thermal coal operation in Colombia also hit output.
Christiaan Bothma , an investment analyst at Sanlam Private Wealth, said operationally 2020 was an extremely challenging year for Anglo American with Covid-19-related production stoppages on top of additional operational issues.
“Despite these challenges, on average higher commodity prices and weaker producer currencies saw underlying earnings down only 8 percent year on year to $2.50 (R36.35) a share.
“The outlook is much better for all its major commodities and this on top of a production recovery close to pre-Covid-19 levels should see a strong recovery for the business in 2021,” Bothma said.
Anglo American said its profit attributable to equity shareholders decreased by 41 percent to $2.1 billion from $3.5bn in 2019, underlying earnings were $3.1bn from $3.5bn, while operating profit was $5.6bn compared with $6.2bn in 2019.
The group generated free cash inflows of $2.7bn, principally used towards growth capital expenditure of $1.4bn, dividends paid to shareholders of $0.9bn, the acquisition of Sirius Minerals including debt acquired of $0.7bn and completion of the share buyback programme announced in July 2019 of $0.2bn.
Anglo American shares closed 7.31 percent higher at R623.60 on the JSE yesterday.