Anglo American braces for fresh takeover turmoil as De Beers owner vulnerable to falling shares

When Duncan Wanblad embarked on the biggest restructuring in Anglo American’s 107-year history to fend off unwanted advances by Australian mining giant BHP, he faced a tough challenge.

The challenge has grown more daunting by the day in the four months since the miner’s chief executive informed shareholders of his intention to sell the FTSE 100-listed company’s nickel, coal, De Beers diamonds and platinum businesses within two years.

Whether it’s the plunge in commodity markets, Anglo’s rapidly falling share price or a fire at its iconic Queensland coal mine, events have conspired against the South African company’s accelerated plans to focus on its coveted copper operations and repair its balance sheet.

The upshot is that Anglo could soon become more vulnerable than ever to a takeover (and at a lower price) after having rejected a £39bn offer from the world’s biggest miner.

This risk, of which Wanblad was surely well aware, is about to become very important for Anglo shareholders.

As part of the Takeover Panel’s rules, the rejected bidder – in this case BHP – has to wait six months before coming back with another offer.

As BHP opted to walk away rather than submit its hostile bid before the Takeover Panel’s deadline of 5pm on 29 May, that restriction is lifted at the end of November.

BHP Chief Executive Mike Henry has stressed that buying Anglo was never its only option and that it had many others, including growing its copper business in South America.

But the main reason Anglo was attracted in the first place – to immediately expand its copper empire to capitalise on the global shift towards electrification and renewable energy – has not diminished.

Meanwhile, there are other potential suitors with big copper ambitions of their own, including Glencore and Rio Tinto, who could still step in to pick up the pieces if Anglo stumbles.

Like other mining stocks, Anglo’s share price has been dragged down in recent months by falling commodity prices, but the scale of the sale does not constitute a ringing endorsement by investors of the company’s turnaround strategy.

Anglo shares have fallen by almost a quarter since May 10, just days before Wanblad outlined his radical defence strategy.

Over the same period, BHP shares fell 7 percent, while Rio Tinto’s fell 15 percent.

To add insult to injury, analysts at JP Morgan yesterday cut their target price on Anglo shares to 2,305 pence from 2,440 pence. The stock fell 0.3 per cent, or 6.5 pence, to 2,122.5 pence.

The fall in the share price in recent months makes Anglo American a more attractive takeover target, according to Russ Mould, investment director at investment platform AJ Bell.

“The lower Anglo American’s share price goes, the more vulnerable the company may be to a predator, who might decide the miner is priced low enough to offer downside protection if something goes wrong and enough upside potential to offset the risks involved,” he explains.

With a market capitalisation of around £28bn, Mould believes other bidders could soon emerge.

He says: “Such a low valuation could easily get on someone’s radar, especially if the share price falls further if Anglo starts to fail in its efforts to complete the Wanblad asset sales on time.”

Part of Anglo’s problem is its overexposure to the commodities it is trying to sell, including nickel, coking coal, platinum and diamonds.

Obviously, this makes it more difficult to get a good price for these assets.

Nickel futures have fallen by a fifth in the past four months amid a glut of cheap supply from Indonesia, financed by China.

This does not help Anglo at all, which has already hired the investment bank Standard Chartered to sell its two nickel mines in Brazil.

Anglo-owned De Beers’ diamond business poses another dilemma, as the rapid growth of lab-grown diamonds (largely made in China) has fuelled a slump in demand for genuine diamonds.

The miner wants to sell the business by the end of next year, so there is at least plenty of time for diamond prices to recover.

A more pressing concern, however, is coking coal, the type used to make steel.

The company’s coking coal business, which consists of five mines in Queensland, will be the first to go to market, with Wanblad hoping to sell the assets by the end of this year.

But a fire in June at its main mine, Grosvenor, halted production and operations are expected to be suspended until the end of the year.

Steel prices have plummeted as China’s property market, which accounts for 30 percent of global steel demand, has slowed sharply.

This has had a knock-on effect on coking (or metallurgical) coal prices, while Queensland’s punitive tax regime for coal miners has also deterred potential bidders, including BHP.

There are currently half a dozen credible bidders for the coal mines, according to a report by the Australian Financial Review, including Australia’s Stanmore Resources and Indian mining group AvidSys.

Unfortunately for Anglo, bidders are reported to have valued the portfolio well below the £4bn anticipated before the Grosvenor mine fire.

With November just around the corner, some Anglo shareholders are likely to be feeling increasingly uneasy.