(Repeats story first moved on April 25, text unchanged)
* Union plus Rustenburg mines could sell for $1-2
* Spin-off, demerger are possible but less likely options
* Anglo to submit recommendation to Amplats board on
By Silvia Antonioli and Ed Stoddard
LONDON/JOHANNESBURG, April 25 If Anglo American
pushes ahead to divest underperforming platinum assets,
a sale to a small South African company that specialises in
squeezing profit out of mines nearing the end of their lives is
seen as the most likely option.
Anglo's platinum unit Amplats and its rivals are
battling an almost 13-week-old mining strike in South Africa
over wages, which has slashed about 40 percent of global
production of the precious metal.
Anglo, the world's No.5 diversified mining company by market
value, signalled this month it could dispose of at least some of
its deep, high-cost platinum mines - and South African gold
miner Sibanye Gold expressed interest in buying them.
Sibanye is seeking to diversify into platinum and its
experience in extracting metal from deep, high-cost gold mines
near the end of their lives could make it a good fit for at
least six of Amplats' platinum mines - five at Rustenburg and
one at Union.
Those mines accounted for about 30 percent of Amplats'
output last year but have only about 5-10 years left of service,
according to analysts, and their operating margins lag younger
Analysts said they could be worth $1-2 billion altogether.
Industry sources and analysts said a sale to Sibanye was the
most likely option because it would serve the interests of both
companies and should also be well received by the government as
it would help to preserve jobs.
"Sibanye is definitely a serious option," said South
Africa-based Investec analyst Albert Minassian. "They are used
to make profit out of mines that the others don't want. So maybe
they can do this in platinum too."
Anglo American Chief Executive Mark Cutifani told
shareholders on Thursday the firm was evaluating all options to
restructure its struggling platinum business and it would make
its recommendation to the board of Amplats (Anglo American
Platinum) within a few months.
As well as the labour unrest, political uncertainty, rising
costs and weaker prices have made mining platinum in South
Africa an increasingly tough business.
So Sibanye, a Gold Fields spin-off created last
year, could be the only bidder for these underperforming assets.
Yet a sale, even if not at a very high price, could be
beneficial for Anglo, offering it an exit strategy from
difficult mines. It would save it from having to shut down
operations and cut jobs in a very sensitive social context.
"Anglo would be better off without Rustenburg," Nomura
analyst Tyler Broda said. "Deep-level underground mining in
South Africa economically is not likely to be able to achieve
Anglo's return on capital targets."
Anglo is targeting reaching a return on capital employed
(ROCE) of at least 15 percent by 2016. In 2013 the company
posted a 11 percent ROCE while Amplats' was 2.7 percent.
The Union mine, one of Amplats' worst-performing mines, had
an operating margin of 1.4 percent in 2013 compared with 36
percent margin for the firm's newer Mogalakwena mine.
Amplats, 80 percent-owned by Anglo American, is the world's
top platinum producer, but it contributed only about 7 percent
to the group's earnings in 2013 and turned a loss in 2012, hit
by violent mining strikes. The latest strike started on Jan. 26.
Alternatives to selling the unwanted assets include spinning
them off from Amplats and listing them separately; demerging the
whole of Amplats; or a share swap with another company, industry
"Given the current state of the market I'd say divesting
platinum would be a positive catalyst because you have a
business that takes up capital but is contributing very little
to the bottom line," said analyst Jeff Largey at Macquarie.
"So there is a case to be made at this point that platinum
is not benefiting Anglo shareholders overall."
An initial public offering in South Africa however could be
difficult given the worsening investment climate in the country,
bankers said. The hardening perception is that the returns in
mines are too low and the risks too high.
A way around those risks would be to demerge the platinum
division and distribute shares to Anglo's existing shareholders.
"With a demerger you can differentiate people who want to
hold the platinum story from people who want less exposure to
south Africa in their Anglo stock," said a London-based banker.
"South Africa is not popular within the mining investment
community at the moment. People are a bit more circumspect, more
than they used to be. That's an issue."
Anglo could also consider swapping shares in Amplats for
additional shares in its more profitable South African iron ore
subsidiary Kumba, a company source said, but to do so
it has to find firms interested in the swap.
An outright sale would be the cleanest option but there is
one problem: few companies want to buy. Indeed, industry sources
and analysts see just one realistic bidder for now, Sibanye.
The gold miner could potentially fund the purchase by
tapping cheap Chinese sources of finance given its connection to
Sibanye's Chief Executive Neal Froneman formerly ran Gold
One where he oversaw its acquisition by a Chinese consortium,
and Sibanye itself is in the process of acquiring Gold One's
Cooke operations in an all-share deal that will see it issue new
shares worth 17 percent of its total stock to the Chinese group
known as the BCX Consortium.
Chinese financing could also come at a competitive price.
The Chinese Development Bank, for example, has provided a
$650 million loan for Beijing's acquisition of a stake in
platinum mine developer Wesizwe Platinum, at around 4
percent - far less than the 8 percent or more South African
companies would normally expect to pay.
Sibanye's Froneman has said he aims to make a material
acquisition in platinum by the end of this year, to build a
South African precious metal champion.
(Additional reporting by Clara Denina; Editing by Pravin Char)