Prices are Flying for the Commodities Anglo Wants to Ditchby and
Coking coal has surged 153% this year; iron ore also rallied
Higher prices are taking pressure of meeting asset-sales goal
Anglo American Plc, the century-old mining firm seeking to cut debt, is getting an unexpected windfall from the commodities it wants to ditch.
When Anglo announced a plan in February to shrink its business by more than half to weather a crisis in raw-material prices, it put coking and thermal coal as well as iron ore on the chopping block. While it chose to focus on more profitable diamond, platinum and copper mines, it’s the commodities being shunned that are performing best this year.
Benchmark prices for coking coal, used to make steel, have surged 153 percent this year to the highest since at least May 2013 amid Chinese output curbs. The thermal type has jumped 40 percent, while iron ore climbed 28 percent. The three commodities brought in combined revenue of about $3.5 billion in the first half, a third of Anglo’s total sales.
Anglo’s surprise earnings boost is easing the pressure of meeting a $3 billion to $4 billion asset-sales target this year. The only major sale so far is the niobium and phosphates business, which the company said in July would bring net debt to $10.3 billion when completed. That’s within touching distance of a goal to cut borrowings below $10 billion by year-end.
“The sales target is immaterial if they can get their net debt down to targeted levels,” said Hunter Hillcoat, an analyst at Investec Plc in London. “The sales process was a means of delivering that. The windfall they’ve gained from higher commodity prices means that’s not so necessary.”
Higher prices may however be holding back asset sales. The process of selling coking coal mines in Australia has been hindered, with both Anglo and possible buyers concerned about the dramatic spike in prices, according to two people familiar with the matter, who asked not to be identified because talks were private. The mines had been valued at as much as $1.5 billion, people familiar with the matter have said.
The London-based company’s attempt to offload a nickel mine in Brazil also stalled because bids from potential buyers were too low, people familiar with the matter said last month.
A spokesman for Anglo declined to comment.
Coking coal’s advance has been so rapid that it’s now more than double the current quarterly contact price agreed between some of the biggest producers and steel mills. With new rates set to be negotiated this month, Anglo stands to benefit from the recent gains.
The advances in commodities Anglo wants to focus on haven’t been as good. Platinum is up 15 percent this year, rough diamonds about 5 percent, while copper is little changed.
Along with Anglo’s plan to pull itself out of a crisis that saw its stock plunge by 75 percent last year, the commodities rebound has led to a share-price resurgence. The company more than doubled this year and is the best performer in the U.K.’s benchmark FTSE 100 Index. The shares were up 0.4 percent by 8:26 a.m. in London.
Some investors are worried about sales being too hasty. South Africa’s Public Investment Corp., Anglo’s biggest shareholder, voiced concerns that assets wouldn’t fetch their full value following the plunge in commodity prices in recent years.
Chief Executive Officer Mark Cutifani has repeatedly insisted that the company is not running a firesale and will rebuff offers that don’t meet its expectations.
“It is about value,” Cutifani said in July. “It is about having the discipline to hold and make sure we get values to the assets.”