Anglo American plans to completely exit its coal business, CE Mark Cutifani says. Picture: REUTERS/SIPHIWE SIBEKO
Anglo American plans to completely exit its coal business, CE Mark Cutifani says. Picture: REUTERS/SIPHIWE SIBEKO

ANGLO American will be a company of just 16 assets within four years, shedding dozens of mines and reducing head count by 78,000 to focus on diamonds, platinum and copper.

The radical overhaul will set it on a course well away from the giant diversified miners.

It will retain platinum mines through its 78% stake in JSE-listed Anglo American Platinum, its 85% stake in De Beers, and a number of copper mines. But it would shed Kumba Iron Ore, its South African coal businesses, and manganese stakes.

Anglo, which was formed in 1917 by Ernest Oppenheimer, was for decades SA’s largest company, a colossus on the JSE straddling a range of industries from mining to paper and steel.

Since 2013, when Mark Cutifani took over as CEO, the company has been shrinking rapidly as it tried to rein in debt by cutting costs and selling or shutting mines.

In the latest iteration of its restructuring, Mr Cutifani and chief financial officer René Médori outlined a strategy focusing on just the three mineral groups and a cutback from the 55 mines it held at the end of last year, ending its tenure as one of the world’s leading diversified mining companies.

Anglo will remove 68,000 employees from its payroll through asset sales, and cut another 10,000 internal jobs, leaving it with 50,000 employees. It employed 162,000 people three years ago.

"We will work with our stakeholders and our employees as we go through the most significant restructure this organisation has seen in 99 years," Mr Cutifani said.

The noncore assets would be sold between now and 2019, with the bulk of the sales this year, raising between $3bn and $4bn. That would be in addition to the $2bn in assets sold last year to pay down borrowings and bring net debt to less than $10bn by December. The balance of the sales would happen over the next two or three years to get net debt to $6bn.

Analysts remained sceptical on Tuesday, echoing concerns raised by rating agency Moody’s on Monday, which downgraded Anglo American’s credit rating to below investment grade or junk status.

Moody's said there was a "high execution risk associated with this restructuring plan, as challenging market conditions are likely to slow the pace of the portfolio transformation".

Fraser Jamieson from JP Morgan Cazenove said: "We also remain sceptical on execution, not least since disposals are unlikely to be coveted by peers and deals to date have been underwhelming."

The three asset classes Anglo would retain were largely consumer focused and set it apart from its peers such as BHP Billiton, Rio Tinto and Vale, Mr Cutifani said.

"We are looking at our natural advantages with the assets we have in those three spaces and making sure we do those really well," he said, presenting the company as a ‘different value proposition’ for shareholders because of the exposure to consumers through diamonds and platinum.

"As a natural consequence we will pull back from the bulk commodities and let the other three companies battle it out and over-supply the market. What we prefer to do is to operate in those areas we think we can maintain and improve margins."

Its three large competitors have, for example, pushed iron-ore production hard, despite slowing demand from China, the world’s biggest steel maker, leading to a collapse in prices and an oversupplied iron-ore market.

Anglo was getting out of iron ore and was considering exit strategies for its 69.7% stake in SA’s largest iron ore miner, the JSE-listed Kumba Iron Ore, said Mr Médori. The options include a demerger or sale of shares.

Anglo will also sell all its South African coal assets, including its mines that provide Eskom with coal, as well as its export thermal coal mines.

The group will sell thermal and metallurgical coal mines in Australia and Colombia. Mineral Resources Minister Mosebenzi Zwane said the sales were a good opportunity to increase the involvement of black South Africans in the domestic mining industry.

Mr Médori was clear the Moody’s downgrade had no immediate effect on Anglo, because with $15bn of liquidity in cash and available credit lines, Anglo had no intention of issuing bonds or raising capital.

The work Anglo was doing could prompt a reversal of the Moody’s downgrade this year, Mr Cutifani said.

Anglo will hang onto the ill-timed and ill-considered Minas-Rio iron-ore project in Brazil for the next two or three years, completing what the company had set out to achieve in developing a low-cost iron-ore mine delivering 26-million tonnes of ore a year.

An analyst, speaking on condition of anonymity, said the purchase price and capital expenditure on Minas-Rio was about the same as the debt in Anglo and "this single project has destroyed this company as we knew it".

When asked whether the $14bn Anglo had spent on buying the deposit then developing the Minas-Rio mine was at the heart of the problems besetting Anglo, which has net debt of $12.9bn, Mr Cutifani said: "It hasn’t helped. It was an unfortunate call. We’d certainly be much more flexible and in a better position if it hadn’t been made.

"This industry has destroyed value time and time again because this industry spent money on stupid things. Minas-Rio was our big mistake," he said.

Sibanye Gold has declared its interest in Anglo’s South African coal sales, with the inclusion of the export-focused mines sure to make the offering more attractive to the gold producer, which wants to add coal to its portfolio to drive an energy strategy that would make it less dependent on Eskom’s increasingly expensive electricity.