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

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THE radical restructuring plans announced by mining giant Anglo American this week should prompt some reflection in its home country.

Once dubbed "SA Incorporated" when it was at its peak as a mining, industrial and financial conglomerate, Anglo was estimated to control 40% of the JSE.

The coal, iron ore and other bulk commodities Anglo’s mines produced were at the heart of the so-called "minerals industrial complex" on which SA’s economy was built, with its cheap coal-fired power and reliance on resources.

But that was another era and SA’s and the global economy have since changed.

Now coal and iron ore are among the assets Anglo will shed as it struggles to cut debt and win back the favour of rating agencies and investors after a year in which its shares lost three-quarters of their value as metals prices plunged to record lows.

Anglo will trim its portfolio to just three commodities — diamonds, platinum group metals and copper. Those are the core areas where it has longer life, more profitable and higher quality assets and is a global leader.

The choice is also, crucially, about trying to reposition the group as a new Anglo for a new world economy — diamonds, platinum and copper are its consumer-facing assets.

And as China rebalances its economy from infrastructure investment to consumer-driven growth, Anglo is trying to move away from the infrastructure side of its portfolio and zero in on the consumer side.

If the disposals and restructuring work out as planned, consumer products will jump from 46% to 78% of its portfolio.

But the envisaged streamlining will be savage. The group’s headcount will more than halve and it wants to end up with just 16 assets, down from 55 now.

Iron-ore producer Kumba, its coal mines that supply Eskom and export markets in SA and many other assets are up for grabs.

It’s targeting $3bn-$4bn of disposals this year, with more to come, though it could unbundle some it can’t sell. In the process, it wants to cut its debt burden from a heavy $12.9bn to $10bn this year and eventually to a more sustainable $6bn or so.

But then, all the world’s major resources houses have had to implement radical cuts to cope with the end of the commodities boom. Anglo is having to go further because of its particular mix of assets and past mistakes.

The modest jump in the share price upon the announcement of the detailed restructuring plans this week suggest that investors believe Anglo is at least doing the right things.

It’s not often a company gets downgraded to junk status by Moody’s and sees its share price jump. But the downgrade on the eve of its results presentation had been expected and there must be some relief that the group appears to have the resolve to make the necessary and tough choices.

Moody’s warnings were instructive. The rating agency said commodities prices were not likely to pick up again anytime soon, limiting Anglo’s ability to meet its debt commitments.

And it warned, as did Fitch, another of the top three global agencies, of the "execution risk" involved in Anglo’s ambitious plans to trim down.

This is not an easy time to sell anything in the commodities space. It’s not yet clear how successful Anglo will be in streamlining its portfolio, nor what kind of prices it will get for the disposals it has in mind. But at least it has made the decision to do so.

South African mining too faces an environment that could be very tough for a very long time. This would be a time to look at making the tough choices needed to start creating a "new SA", one less dependent on old smokestack industries and minerals and more able to develop the economy in ways that could take advantage of the changing world.