Anglo American Plc should sell its iron-ore assets and focus on diamond and platinum operations for the benefit of its shareholders, according to Investec Plc.
The producer of minerals from Australia to Brazil could raise as much as $4.66 billion selling assets in South Africa and Brazil, analysts Marc Elliott and Hunter Hillcoat said.
“A disposal of the entire iron ore portfolio would be a game changing transaction, strengthening the balance sheet, reducing the risk profile of the group and potentially enabling a substantial re-rating,” the analysts said in a note.
Iron-ore prices reached a decade low of $47 a metric ton on April 2 before rebounding to $59. Investec forecasts prices will average $55 a ton this year before rising to $80 a ton by 2019.
Anglo, which owns about 70 percent of Kumba Iron Ore Ltd., Africa’s largest producer of the steel-making raw material, in October began shipments from its Minas-Rio mine in Brazil as prices slid after the largest producers including BHP Billiton Ltd. expanded capacity amid slowing demand from China.
“Even in today’s depressed environment, we argue that an exit from iron ore might still offer the best value for Anglo American shareholders,” the analysts wrote. “The division presents a risk to the group if iron ore prices slip back.”
Anglo could use funds from the sale for dividends and to invest in operations such as copper, Investec said. Iron-ore assets may attract buyers from China, the analysts said.
“With iron ore prices and the Kumba share price having bounced strongly in recent weeks, market conditions for such a transaction appear to have improved,” they wrote.
Kumba has risen 30 percent in about the past month.