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London - Anglo American [JSE:AGL] is looking to exit its controlling stake in Kumba Iron Ore [JSE:KIO], Africa’s largest producer of the steelmaking ingredient, after the mining group said it will build its future around copper, platinum and diamonds.
“We’re looking at either a selldown in our position in Kumba as well as a potential demerger,” Rene Medori, the chief financial officer of London-based Anglo, which owns a 69.7% stake in Kumba, said on a conference call Tuesday. Anglo “will not expect to complete the transaction until sometime in 2017,” Medori said.
The decision to exit the holding comes as the iron-ore producer saw its margins squeezed by a 67% slump in prices since the start of 2012 after some of the biggest operators, including BHP Billiton and Rio Tinto, fed a supply glut. Kumba’s profit margin declined from 27% to 11% over the same period, prompting the company to cut jobs and axe its dividend.
Anglo American reported a fourth year of losses after metal prices collapsed and said it will cut debt to less than $10bn by the end of the year as it seeks to sell off mines that don’t take money and raised its target for disposals to as much as $6bn by the end of the year.
The company lost $5.62bn in 2015, compared with a $2.51bn loss the previous year, London-based Anglo said on Tuesday. Excluding some items, Anglo earned 64 cents a share, compared with $1.73/share in 2014. The average estimate from a Bloomberg survey of analysts was 63c/share.
Anglo, with mines around the world producing everything from diamonds to iron ore and nickel, lost three-quarters of its market value last year as investors questioned the company’s survival given its billions in debt and metal prices at six-year lows. To preserve cash, the company has promised to reduce the number of mines it owns, cut staffing and stop paying a dividend.
Anglo said full-year sales fell 26% to $23bn.
Speculation that the worst is over sent Anglo’s shares up almost 80% over the last three weeks, closing at 393.05 pence in London on Monday.
Kumba will work with Anglo to evaluate options for the exit, it said in a separate statement. Kumba's shares were up 1.51% at R55.50 shortly after noon and the stock has climbed 36% since the beginning of the year. Shares in Anglo slipped 5.32% to R83.97.
“Anglo is under a lot of pressure to liquidate assets and this might be easier to get rid of,” Stephen Meintjes, head of research at Momentum SP Reid Securities in Johannesburg, said by phone. The assets have potential for decent future profits “depending on the price and their ability to run it efficiently,” Meintjes said.
