Anglo American sells assets 
to China Moly for US$1.5B

One of China’s largest molybdenum and tungsten concentrates producers is buying Anglo American’s (US-OTC: AAUKF; LSE: AAL) phosphate and niobium businesses in Brazil for US$1.5 billion in cash.

The sale to China Molybdenum is part of Anglo American’s wider effort to dispose of billions of dollars of debt on its balance sheet and marks the biggest divestment since the South Africa-based miner announced its restructuring plans in February.

The company looks to dispose of US$3 billion to US$4 billion in assets this year after posting a US$5.5-billion net loss in 2015, and CEO Mark Cutifani said in February that management expects to lower net debt to less than US$10 billion by year-end.

In a press release, the CEO described the latest sale of the phosphate and niobium businesses as “another positive step in the strategic reshaping of Anglo American.”

James Wyatt-Tilby, Anglo American’s group head of corporate communications, told The Northern Miner in an email that the sale price exceeded the analyst consensus of US$1 billion and was “a function of the quality of the two businesses:  being both the second-largest phosphate producer in Brazil and the second-largest supplier of niobium globally.”

He said that “attractive assets are in demand — they simply don’t fit our strategy.”

Anglo American’s Ouvidor phosphate mine in Brazil.  Credit: Anglo American.

John Tumazos of Very Independent Research, LLC, says the US$1.5 billion will help Anglo American “pay down the debts associated with large capex into iron ore and other expansions, such as overruns at the Minas Rio iron ore mine in Brazil, where the final capex was nearly thrice initial estimates.”

Tumazos wrote in an email that “Niobium and phosphate markets are not as deeply depressed as coal, iron ore, copper, platinum or other assets that Anglo American may have sold. It helps Anglo American obtain ‘fair proceeds,’ rather than selling other assets into more depressed markets.”

The sale was also hailed by David Gagliano, a mining analyst at BMO Capital Markets, who raised his target price on the stock after news of the deal from £5 to £7.50 per share, and said the divestment is “a step in the right direction,” and “makes a significant inroad into Anglo American’s debt-reduction program.”

In a brief research comment he noted that by including the niobium and phosphate asset sales into his forecasts, the company’s net debt by year-end would drop 12% to US$11.8 billion. Gagliano also said the sale “potentially puts the company in a stronger negotiating position, with regards to the rest of its asset-disposal program.”

Anglo American’s Cubatao phosphate processing plant in Brazil’s Sao Paulo state. Credit: Anglo American.

Industry observer Christopher Ecclestone sees it differently, however. The co-founder of Hallgarten & Co., a London-based boutique investment bank in the mining space, doesn’t think the sale makes sense.

“This shows Anglo-American’s management is so dumb it does not know the turn has come,” Ecclestone wrote in an email. “Glencore put a whole lot of stuff up for sale in their darkest hour and have now quietly taken down the ‘for sale’ signs … Anglo American is still trying to please … these sales will be bitterly regretted — and criticized — two years from now.”

Anglo American’s Wyatt-Tilby dismisses that view.

“Our decision to sell is not based on a particular position in the cycle, but the clearly defined strategy we set out in February to focus on those product groups where we have scale and the greatest competitive advantage — as the market leader in both diamonds and platinum, and a world-class position in copper … niobium and phosphate provide great businesses, but they are not of sufficient scale for us, nor do they have market leading positions.”

Niobium is used to strengthen steel and phosphate is used in fertilizer.

The transaction is subject to regulatory approval from China and could close in the second half.

China Molybdenum is listed on the Hong Kong and Shanghai stock exchanges and owns the Sandaozhuang mine, which it describes as having one of the largest defined reserves of molybdenum and the second-largest defined tungsten reserves in the world.