Anglo American narrows focus, trims SA exposure (November 07, 2005)

Making a decisive break with its history, mining giant Anglo American (AAUK-Q, AAL-L) plans to reduce its 51% stake in gold miner AngloGold Ashanti (AU-N, AGD-L) as part of a streamlining of its portfolio.

Founded in 1917 by Sir Ernest Oppenheimer, Anglo built its fortune mining the gold in South Africa’s East Rand, and became the largest shareholder in the De Beers diamond mining company in 1929. Anglo still holds 45% of De Beers.

The company says the move is designed to allow for increased focus on its core platinum, diamond, coal, base metals and iron ore businesses.

“This announcement marks a further step in Anglo American’s ongoing strategic development,” said Anglo’s CEO Tony Trahar in a statement. “Through a series of measures, we are creating a more focused mining group, better positioned to take advantage of opportunities in our main mining businesses.”

Anglo says reducing its stake in South African-based gold miner AngloGold Ashanti will also benefit the latter by giving it “greater flexibility to pursue its strategic agenda.” Still, Anglo says it will remain a “significant shareholder” in the medium term.

Anglo also says that its investors are not properly valuing the gold subsidiary, which was formed via the merger of AngloGold and Ashanti Goldfields in April of 2004.

AngloGold Ashanti, the world’s second-biggest gold producer, said it welcomes Anglo’s announcement, with CEO Bobby Godsell commenting that the move will mean greater trading liquidity for AngloGold Ashanti.

AngloGold Ashanti has 22 operations in 10 countries spanning four continents. In 2004, gold production totalled 6.05 million oz. at a total cash cost of US$268 per oz.; production for 2005 is expected to exceed 6.5 million ounces at US$273 apiece.

AngloGold Ashanti recently posted a third-quarter net loss of US$68 million, compared with earnings of US$112 million the previous quarter. The company’s gold production also slipped by 2% to 1.53 million oz., while total cash costs rose by 2% to US$284 per oz. The lower production reflects anticipated declines in gold grades at the Geita mine in Tanzania and Sunrise Dam in Australia, and a reduction in heap leach ounces at the Siguiri mine in Guinea.

In early 2004, Anglo sold its 20% stake in South African gold miner Gold Fields (GFI-N, GOF-L) to Russian miner Norilsk Nickel for US$1.16 billion in cash.

Anglo’s plan also calls for US$1 billion to be returned to its investors via a share buyback or special dividend in 2006.

The company will also sell its 80% interest in South African-based Highveld Steel and Vanadium (HSVLY-Q), the world’s largest vanadium producer. South African sugar and aluminum company Tongaat-Hulett (THL-L), has been asked to look for ways of unlocking greater value for shareholders, Anglo said. The company will also restructure its Tarmac industrial minerals division by selling off underperforming portions of the business. Anglo may also spin off its paper and packaging subsidiary Mondi. Anglo says that while the company is profitable, it would receive a better valuation from investors as an independent entity.

As part of its effort to focus on growth projects in its core mining businesses, the company will continue with an ongoing US$5-billion capital spending program. It will also be considering further acquisitions in the mining sector.

Anglo’s American Depository Receipts were US$1.57, or 5.6%, higher at US$29.39 in afternoon Nasdaq trading; shares in AngloGold Ashanti were off US13 at US$42.10.