London 08/01/2016 - Anglo American’s copper mines are a prime target for a take-over as mining majors look to acquire major assets, SP Angel said in a note on Friday.
At present Anglo holds 44 percent of the Collahuasi mine, while its Los Bronces is one of the largest copper mines in the world and, according to SP Angel, has the ability to be grown into a tier one production.
A tier one asset is among the largest and highest quality producing mines and is characterised by economies of scale, expandable resource base and low production costs.
Both Rio Tinto and BHP are “looking at consolidating and carving out new tier one assets,” the note said.
Plus, in the current risk-off environment, Anglo shareholders may willingly take paper in Rio Tinto, BHP or Glencore.
“Paper is the most likely currency in this market where raising debt is less favoured and balance sheets need ongoing repair,” the note said.
Indeed acquisition could be a good move for miners as buying and building new quality copper production is costly and it could purchase mines at a cheap price. Still, miners are often reluctant to purchase until they are certain that the commodity has hit the bottom.
Last month the platinum, nickel and copper miner announced plans to consolidate into three business units from six and sell more of its assets, alongside reducing its workforce to 55,000 from 135,000.
Its capex for 2015 and 2016 will fall by around an additional $1 billion; it also slashed its 2017 capex to $2.5 billion, a drop of around 55 percent from its 2014 expenditure.
But, Anglo’s restructuring announcement in December was seen as “short on detail” with much depending on “finding willing buyers to pay cash for less attractive assets” said SP Angel.
Today, the mining company was one of the worst performers of the FTSE 100 as its shares crashed to a fresh all-time low of 230.80p.
The fall in its share price is a reflection of the on-going rout in the commodity sector, with many metals trading at multi-year lows – yesterday, copper slipped to its cheapest since May 2009 when it hit $4,430 per tonne.
The company has a debt mountain of $18.94 billion compared with a market capitalisation of around $10 billion.
Its preliminary results are due in February and further clarity on how the miner will proceed to quell shareholder fears are expected then.
(Editing by Tom Jennemann)