The future of South Africa’s most historic company  

Anglo American is undergoing one of the most extensive restructurings in its history. It is set to transition from a diversified miner into a nearly pure iron and copper play. 

However, some investors are not convinced that this will result in a better company in the long run, with it losing its exposure to platinum and being an even more attractive takeover target.

This is feedback from Sanlam Private Wealth investment analyst Christiaan Bothma, who outlined Anglo’s restructuring progress and what may be lost by the end of it. 

Once the behemoth of global mining and one of the largest companies in the world, Anglo’s mining empire has been diminished over the past thirty years.

The company has been eclipsed by Australian giants BHP and Rio Tinto. At the same time, commodities traders such as Glencore have risen to be among the most lucrative mining companies in the world.

BHP kickstarted Anglo’s latest reinvention with its takeover bid in April 2024, spurring the company to stave off the takeover by restructuring its business. 

As part of this radical overhaul, Anglo is expected to exit its diamond, platinum, and remaining coal businesses and transform into a copper giant.

Since announcing the restructuring, Anglo has sold its coal and nickel business for $4.8 billion (R87.1 billion) and $0.5 billion (R9 billion), respectively. 

It has also made good progress in demerging Anglo American Platinum, which is expected to be fully completed by June 2025. 

The most challenging part of the restructuring appears to be De Beers, which is unlikely to be fully demerged by the end of the year. 

Anglo has written down its stake in De Beers by $4.5 billion in the past few years as the diamond miner has come under pressure from the rise of manmade alternatives. 

For the first time in a century, it appears De Beers’ stranglehold on the supply of diamonds is broken. 

Historically, miners have been able to increase their prices in line with the rising cost of mining diamonds by artificially limiting supply. This is not the case anymore.

This means that Anglo is unlikely to be able to sell De Beers for its book value, meaning that the company may be demerged and forced to stand alone. 

The future of Anglo

Bothma said the result of all this restructuring is that by 2027, the more streamlined group will derive around 60% of its profits from copper, which is its most promising long-term asset. 

The rest will come from its high-quality iron ore assets in South Africa. Demand will stay strong as countries and companies plan to spend trillions on building infrastructure for artificial intelligence and electricity grids. 

In particular, Anglo is well-poised to benefit from rising copper prices as it has some of the highest-quality reserves in the world. 

Many of the world’s biggest copper miners suffer from declining grades at their operations, leading to lacklustre supply amid heightened demand. 

Some have announced new projects, but these will take years to build and come online. Many will also need higher prices to be economically viable. 

Anglo has a world-class copper portfolio. Its South American mines rank among the longest-lived and lowest-cost in the industry and have embedded low-capital growth optionality, Bothma explained.  

This is what BHP envies and was the main motivation behind last year’s bid for its smaller competitor.

The prospects for iron ore are less certain as China’s steel demand has peaked, and India is not yet a large enough economy to replace it. 

Iron ore prices are also threatened by the growing role of scrap and recycled steel in the global supply chain. 

With China consuming more than 60% of global iron ore, demand is likely to remain flat at best. Rising demand from other emerging markets is probably insufficient to offset China’s decline.

At the same time, about 10% of new low-cost supply is expected to enter the market over the next five years, notably from the large Simandou deposit in Guinea. 

This low-cost supply growth will likely result in some higher-cost producers being pushed out of the market and a lower-cost support level.

Anglo’s iron ore mines – Kumba in South Africa and Minas Rio in Brazil – are relatively high-cost, sitting in the third quartile of the global cost curve. 

Bothma said that this makes them more vulnerable to price declines than low-cost producers BHP and Rio Tinto.  

However, Anglo’s ore is of higher quality and the price premium for this quality is expected to increase as carbon prices rise (higher-quality ore enables more efficient steel production with lower emissions). 

Platinum missing out

The miner has deemed Anglo American Platinum (Amplats) non-core. It is progressively disposing of its stake and is set to fully demerge it later this year. 

Historically, when commodities have been classified as non-core, it has often marked the bottom of their cycle. 

However, Anglo shareholders are not being forced to sell this good asset at the bottom of the cycle – they will receive Amplats shares that can be sold at a higher price. 

Amplats holds some of the best platinum group metal (PGM) assets in the world, most notably its low-cost, open-pit Mogalakwena mine, which has a remaining lifespan of 100 years.

Bothma explained that long-term demand for PGMs is uncertain due to the rise of electric vehicles – PGMs are primarily used as catalysts in internal combustion engine vehicles. 

However, industrial demand for platinum, along with minor metals like iridium and ruthenium, remains solid and is growing. 

This should help offset the decline in palladium and rhodium demand, which is more exposed to the automotive sector.

Primary mine supply is expected to fall significantly over the next decade as many deep-level mines in South Africa are near their life’s end. 

Bothma said Sanlam Private Wealth views current price levels as unsustainable for the industry and anticipates a recovery in the coming years. 

Thus, the asset manager is likely to retain its stake in Amplats following the unbundling.

Bothma believes that the streamlined Anglo formed after the restructuring will be even more attractive to BHP and other mining companies seeking exposure to more copper.