The resignation of Anglo American's (AAL) chief executive, Cynthia Carroll, certainly played well with the stock market. Shares in the South Africa-focused mining giant ticked up nearly 4 per cent after Ms Carroll said she was leaving. Despite this upwards blip, the group has entered a transitional phase at a time of heightened industrial and social unrest in South Africa. So, although Anglo's share price is 34 per cent off its 12-month high, there are factors that could push it much lower.
- Wildcat strikes
- Lost platinum production
- Problems at Minas Rio
- Debt rating downgraded
- Change in leadership
- First-class mines
Apart from its timing, news of Ms Carroll's resignation caught few industry analysts completely by surprise. The mining giant's share price fell during her nigh-on six-year tenure. So, after years of underperformance, a change of leadership was predictable, particularly considering the growing dissatisfaction of some of Anglo's major shareholders, such as BlackRock.
Part of the Ms Carroll's remit was to diversify Anglo American away from South Africa. In this, she has only been partially successful. The hugely promising Minas Rio iron ore project in Brazil, for example, is now three years behind schedule and has already cost Anglo around $10bn (£6.2bn) - around double the original estimate. A recent visit by board members to Brazil prompted speculation that a write-down is in the offing, along with another hike in the capital costs.
| ANGLO AMERICAN (AAL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,935p | MARKET VALUE: | £26.9bn | |
| TOUCH: | 1,935-1,936p | 12-MONTH HIGH: | 2,927p | LOW: 1,720p |
| DIVIDEND YIELD: | 2.9% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 1,810p | NET DEBT: | 7% | |
| Year to 31 Dec | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2009 | 20.9 | 4.03 | 202 | nil |
| 2010 | 28.0 | 10.93 | 543 | 65.0 |
| 2011 | 30.6 | 10.78 | 510 | 74.0 |
| 2012* | 32.2 | 6.52 | 224 | 85.0 |
| 2013* | 39.3 | 8.44 | 275 | 89.3 |
| % change | +22 | +29 | +23 | +5 |
Normal market size: 1,000 Matched bargain trading Beta: 1.6 *JPMorgan Cazenove (only dividends comparable with historic figures) £1=$1.597 | ||||
Notwithstanding Minas Rio, Anglo remains disproportionately exposed to South Africa through the scale of its iron ore, platinum and coal operations. These segments accounted for around half of 2011's cash profits, with Kumba Iron Ore - a site of recent wildcat strikes - responsible for 39 per cent of cash profits in the first half of 2012.
The group undoubtedly benefits from some first-rate mines in South Africa, but clearly the country is an increasingly risky place in which to operate. Only last month ratings agency Standard & Poor's downgraded its credit ratings for both Anglo American and South Africa, citing the wildcat strikes and gathering social unrest as reasons. It is a worrying precedent that Anglo has just been forced to cede a $143m majority stake in a mine in neighbouring Zimbabwe, as part of that country's 'indigenisation' programme. Many activists in South Africa's ruling African National Congress (ANC) are pushing Pretoria to follow Zimbabwe's uncompromising policy and, with elections due in 2014, they may get their way.
Meanwhile, problems with illegal industrial action show little sign of abating. Amplats, the group's 80 per cent-owned platinum arm, agreed to reinstate 12,000 platinum miners it had previously sacked for a wildcat strike at its Rustenburg site. It even offered to pay a one-off 'hardship allowance' of ZAR 2,000 (£143) net of taxes to compensate employees for lost pay, but to no avail. The strikers are holding out for a wage increase in line with the 11-22 per cent settlements granted to employees of Lonmin's Marikana mine - the scene of South Africa's deadliest outbreak of labour-linked violence.
Anglo faces other threats to production as industrial disputes have started spreading to other areas of the economy. If, for example, thermal coal production fell as a consequence of strikes, then state-owned energy supplier Eskom could be forced to reintroduce the rolling power cuts that seriously hit mining production in the recent past.
