Category Archives: The In & Out

Anglo American Angel Cake!

Have it… and eat it! AAL is an obvious takeover target. The company is the largest platinum producer but also controls copper, coal, iron ore, nickel and diamond mines. In summary: A real hotchpotch of assets, an anachronistic conglomerate, over-diversified and lacking in focus. CEO Mark Cutifani is doing a reasonably good job but has made it clear that he isn’t exactly averse to takeover offers.

Several factors do not bode well for the mining sector:

Miners have slashed projections for capital expenditures in the last couple of years. In spite of lower investment, oversupply still threatens many of their end markets — and is here to stay. In fact, it does look increasingly unlikely that China will bail out the West in the long run.

That, in turn, would simply mean two things: a) they must integrate their current offering with more products and ancillary services in order to retain their clients; b) they must combine their costs to cut the resulting cost base.

Anglo is appealing for both reasons. Let’s face it: It’s all about synergies.

The formidable Ivan Glasenberg, CEO and main shareholder of Glencore, has rejected rumors of a bid: “With Anglo, we don’t trade diamonds, if that gives you a good idea, and we don’t trade platinum. We will only look at assets which we trade, which we market.” And, true to his word, he has moved on to Rio Tinto, a rather bigger fish in the pond. Still, with Anglo’s s/p bumping along rock bottom levels, its attraction is clear: Steal the lot, break it up… and laugh all the way to the bank. It’s the minnow amongst the miners and consolidation is rife. Furthermore, due to its small size,  it would be highly unlikely to attract the scrutiny of the competition authorities.

Glencore and BHP remain the best long-term investments. Rio, with almost 90% invested in iron ore, is a true NO!!! brainer… on a suicide mission by constantly ramping up supply in the face of deteriorating demand. Anglo, however, is the weakest link in the chain and its chances of survival as an independent company are extremely slim, indeed. It’s not a question of IF but only WHEN one of the bigger boys will pounce. At the current depressed s/p, not even private equity can be ruled out anymore.

Further to this: Big is beautiful!