BHP had made the bid for Anglo to cover and exploit synergies in the field of copper at a time when the world is moving away from fossil fuels toward more renewable energy projects and electric vehicles. The demand for cooper is expected to increase by about 20% by 2035.
Anglo American (AAL) rejected for a second time a takeover bid from BHP Group, at $ 43B, 14.6% superior to the first offer, with the same conditions, i.e. divesting its platinum and iron ore divisions. In reaction Anglo-American decided to accelerate its strategic plan and announced many transformative measures. There are some radical shakeups ahead:
- The spinoff of Anglo-American Platinum (AMSJ) – the stock is quoted at the Johannesburg stock exchange. AA is a majority shareholder of AMSJ with a stake of 78.6%. At current prices, the stake in AMSJ is worth about $8.9B. For Anglo America this stake is about 10% of group EBITDA.
- Anglo-American is to disinvested (by a sale) its metallurgical coal activity. This activity contributes for about 17% of group EBITDA. For the time being, an acquirer needs to be identified.
- Diamond business: Anglo-American has decided to sell or spinoff the brand name De Beers, under which the diamond extraction and trading is taking place. In 2023, the diamond business was EBITDA neutral, but accounts for about 15% of group sales.
- An exploration of the maintenance and possible divestment options of its nickel activity. The nickel business represents about 2% of group’s EBITDA.
- The slowdown of its investments of the polyhalite Woodsmith mine (crop nutrients).
Once all announced items are stripped-off, Anglo American is left with roughly a 50/50 exposure to copper/iron ore (this is at EBITDA level and estimated for 2024 operations). On the top comes the crop nutrients, which is a kind of wild card for the company, and not valued in this project analysis.
According to JPMorgan, the total divestments are estimated at roughly $22.7b, or about 55% of its present market value. This move back to basics is clearly defensive and aiming at increasing the standalone value of the group (the sum-of-part value is higher than the present market cap). Provided all items are performed, Anglo American appears with a less discounted value as the key business could be valued at $27Bn using a 10x 2025 EV/EBITDA multiple. Therefore, the fair price of Anglo American is north of $37.8 (currently $33.10).
The stock is flattish for now, most likely because of the lacking clarity about the assets’ sale price. Furthermore, it has further reduced any potential value for speculation as the visible determination of the management to push back BHP Group’s is market neutral. The new situation also reduces the prospect of a third offer by BHP but the likelihood of hostile takeover attempt still exist as under the new configuration Anglo’s shares are now trading at a discount vs the second BHP’s offer (circa 8%, for now).