The Zhitong Finance App learned that Anglo-American Resources will withdraw from the diamond, platinum and coking coal business in a large-scale restructuring and focus on iron ore and copper businesses to resist the acquisition of competitor BHP Billiton (BHP.US).

Plans to sell or split De Beers, Anglo-American Platinum and Coking Coal businesses to focus on iron ore and copper businesses

Anglo-American Resources announced on May 14 that it plans to split or sell its subsidiary diamond giant De Beers, and also plans to split its Anglo-American Platinum Group and sell its coking coal mine in Australia. The company will also slow down investment in a large fertilizer mine in northern England — although some investors have urged the company to exit the project and sell or close its smaller nickel business in Brazil.

These initiatives will make the business structure of Anglo-American Resources much simpler. The business of Anglo-American Resources has been a “hodgepodge” of commodities for many years. The company has been planning steps to drastically reduce and streamline its business. Meanwhile, the proposed acquisition from BHP Billiton acted as a catalyst, prompting British and American resources to speed up decisions that had been on hold for many years. Anglo-American Resources will now focus on the copper and iron ore business. These two businesses are the company's largest and most stable source of revenue, and the businesses BHP Billiton is most interested in.

On April 25, BHP Billiton proposed a full share purchase offer to Anglo-American Resources, valuing the latter at £31.1 billion (approximately US$38.8 billion). On May 7, BHP Billiton revised its takeover offer, valuing it at around £34 billion (US$43 billion). However, Anglo-American Resources still rejected the revised takeover offer, saying that although it was nearly 10% higher than the initial offer, it still seriously underestimated the company's value. Additionally, BHP Billiton's revised acquisition offer once again requires Anglo-American Resources to sell its platinum and iron ore business in South Africa. In response, Anglo-American sources said that this structure is unattractive.

Anglo-American Resources expects investors to support its plan and support the company's management in implementing the plan, rather than push it to accept BHP Billiton's acquisition offer. Investors have been asking British and American resources to come up with their own plans until now, and a series of measures announced today have responded to investors' demands.

In response, UBS analyst Lachlan Shaw said, “This is not the direction BHP Billiton wants to go. The rejection of Anglo-American resources may come as a surprise to them, and they may expect further discussions.”

It is worth mentioning that after Anglo-American Resources first became the majority shareholder of De Beers in 1926, Anglo-American Resources' decision to split or sell De Beers would break the ties between the two companies for nearly 100 years. In recent years, the diamond market has become increasingly unstable, fluctuating between boom and bust, making De Beers increasingly out of place in the pursuit of stability in British and American resources. Furthermore, the challenges brought about by changing consumer habits require diamond companies to invest more and more in advertising, etc., which is beyond the comfort zone of many mining investors.

Anglo-American Resources plans to cut its spending on the Woodsmith fertilizer mine in northern England to about 200 million US dollars by 2025, a sharp drop from about 1 billion US dollars a year before, and plans not to spend any money on this fertilizer mine in 2026. The company also said it will seek to bring in one or more strategic partners to share the costs of the project. In addition to huge expenses, investors' concerns about the large-scale Woodsmith fertilizer mine are also growing. The company's Anglo-American Resources will produce a relatively unknown fertilizer product, polyhalite, from the mine, which means that Anglo-American Resources will need to start almost from scratch to create a huge new global market for this product.

Grant Sporre, a metals and mining analyst at Bloomberg Intelligence, said: “The plan to split or sell Anglo-American Platinum, De Beers, Coking Coal and Nickel businesses is likely to take at least 18 months to complete, and the execution and timing risks are about the same as the BHP Billiton takeover offer that it rejects. However, once the planned spin-off or sale of Anglo-American resources is completed, a smaller, more focused business portfolio may attract a wider range of potential buyers.”

Major shareholders of BHP Billiton call for restraint in the acquisition of British and American resources

As investors weigh the steps BHP Billiton may take after both takeover offers from Anglo-American Resources were rejected, Australian Super, BHP Billiton's largest shareholder in Australia and Australia's largest pension fund, said that capital discipline is critical to the mining industry.

Luke Smith, senior portfolio manager responsible for Australian Super's Australian mining investments, declined to comment on whether the fund would support the acquisition, but confirmed that the fund had “more than once” contacted BHP Billiton.

Luke Smith said, “If part of your strategy is copper, then you'll follow and try to execute that strategy.” But at the same time, he said that capital discipline is very important, and this is people's biggest concern when carrying out any integration in the commodities sector.

In recent years, copper is an important metal for energy transition and electrification. Demand for copper ore has been rising steadily, and prices have risen accordingly when supply is tight. BHP Billiton has always made it clear that it wants to expand its copper business to take advantage of rising market demand for copper.

After a series of crazy, untimely, and overly expensive acquisitions, the mining industry is struggling to get out of the haze of more than a decade. These acquisitions cost investors billions of dollars and left even some large mining companies burdened with debt.

The stock price of Anglo-American Resources was slightly lower at the close of the day on Monday. BHP Billiton's offer indicates that the market is not yet convinced that the deal can be reached. Many smaller investors in BHP Billiton believe that BHP Billiton will implement the acquisition plan by increasing the purchase price.

Hedge fund Tribeca Investment Partners is also a shareholder of BHP Billiton. “BHP Billiton is considering future copper shortages,” said Jun Bei Liu, the fund's portfolio manager. “It's likely that the bid is too high, and the mining company's record in this regard is not good, but what the mining companies want to show is that they believe in their strategy.” Jun Bei Liu also added: “This is a big deal and requires significant regulatory approvals from many jurisdictions. So I think it would be very expensive to take aggressive measures.” “There is more uncertainty about this already very complicated agreement.”