Anglo American in $3.8bn Australian coal mine deal

Anglo American (AAL) has landed a $3.8bn (£3bn) deal for its Australian metallurgical mines, although it will have to get the suspended Grosvenor mine back into production and hope for high coal prices to get the whole purchase price from Peabody Energy (US:BTU).

The deal is part of the break-up plan launched in the wake of BHP’s (BHP) takeover advances in the first half of this year. 

Peabody will pay $2bn in cash up front, with another $725mn to be paid over four years from completion. Anglo will receive another $450mn if Grosvenor is returned to production after a fire in June, and up to $550mn dependent on the coal price over four years. Separately, Anglo has also sold its majority interest in another mine for $1.1bn. 

Analysts said the sale price was ahead of the expected valuation for the four mines, including Grosvenor, with the consensus valuation at $2.8bn. “We see this as a positive event that will serve to reassure the market on management's commitment to execute on the restructuring plan,” said RBC Capital Markets analyst Marina Calero. 

The sale comes just days before BHP is allowed to make another approach to Anglo under UK Takeover Code rules. Anglo chief executive Duncan Wanblad, who launched the company’s break-up plan after BHP set out a plan to buy the company only after it hived off South African divisions, said the coal sale was “another important step towards delivering the strategy that we set out in May to create a world class copper, premium iron ore and crop nutrients business”. 

This means spinning off the Johannesburg-listed Anglo American Platinum business and selling or spinning off the De Beers diamond division. Wanblad said the Amplats demerger would happen by mid-2025 and the company was working on a “separation for value” for De Beers. 

Calero said investors would likely respond well to the break-up plan as it continues. 

“An expected recovery in [platinum group metals] and diamond prices could also help boost sentiment while a renewed approach from BHP cannot be ruled out, with the end-November deadline soon approaching,” she added, while also warning of “value leakage” during the divestment process and below-average free cash flow generation in the next two years, compared with others in the sector. 

Anglo shares climbed 1.5 per cent on the divestment news. It is trading 22 per cent up on the start of the year, well ahead of BHP and Rio Tinto (RIO), which have been knocked by lower iron ore prices and a poorer Chinese growth outlook.