A straw in the wind, or a one off or special situation? Whatever it is, the decision by Anglo American to halt asset sales and hang on some its unwanted businesses, such as its Queensland coking coal mines has made the market sit up and take notice and wonder about what other resource companies might be thinking about their for sale assets.
And sit up they did with the shares jumping more than 7% in London.
The big unknown is the oil price and what happens at the November 30 OPEC meeting and any decision to cap oil production – and the sustainability of any agreement.
If that happens it would go a long way to stabilising commodity prices around current level – no agreement, or a weak one that is soon broken would see oil prices slide, taking other commodity prices with it.
And there is a further complication with the recent rise of the value of the US dollar, the Fed decision on interest rates next month and the unknown policies of President-elect Donald Trump and their impact on the value of the greenback. A strong, sustained rise in the value of the US dollar will eventually trigger a fall in commodity prices.
But for the moment it looks like the commodity price rebound has changed sentiment at the highest levels of Anglo American (even though many companies believe the rebound is temporary).
And Anglo CEO, Mark Cutifani added to the intrigue this week by suggesting that (without mentioning it directly) that the company could go down the route BHP Billiton did with its South32 spin off and put its unwanted South African businesses into a listed vehicle.
That would have the benefit of freeing Anglo from the growing morass and malaise that is gripping the South African mining sector and the economy generally.
Anglo’s change of heart came during an investor day for analysts on a visit to platinum and diamond mines in South Africa and Botswana. Hit by the natural resources crash, cost over runs (especially on its underscale Brazilian iron roe operation) which have left it carrying large borrowings, Anglo in February put its coal, iron ore, manganese and nickel assets up for sale as part of a what was then called a “shrink to survive” move that would have left it concentrating three core commodities — copper, diamonds and platinum.
It was a more desperate version of the way BHP got rid of its unwanted assets, especially in South Africa and Australia in commodities such as thermal coal, manganese, bauxite, alumina and aluminium which were tipped into South32.
But since the rebound in commodity prices from mid year onwards, lead by coal and iron ore, Anglo has been having second thoughts – as we saw last month when it knocked back a $US2 billion offer for its Queensland coking coal mines from a group of investors led by US asset player, Apollo Management.
Now it will hang on to assets previously deemed non-core, and run them for cash — unless it receives the “right” offers.
Analysts say the rebound in bulk commodity prices has boosted Anglo’s cash generation and profitability to such a level that it will be able to meet its debt reduction target by the end of this year without any more asset sales.
Anglo is seeking to cut its net debt to around $US10 billion by the end of this year from $US11.7 billion at June 30. In April, Anglo agreed to sell its niobium and phosphate operation in Brazil for $US1.5 billion, moving the company halfway towards its stated goal of $US3 to $US4 billion of asset sales this year.
Mr Cutifani also told analysts on Monday that he was open to the idea of spinning-off Anglo’s non-core South African assets into a company that could become a domestic “mining champion”. In other words, separated from the day to day core operations of Anglo.
