Major restructuring plans unveiled by Anglo American PLC (LSE:AAL) today do not seem to have overly impressed investors, with the shares falling 1%.
A day after rejecting a second £34 billion approach from larger Aussie rival BHP, the FTSE 100 listed mining group said it would sell its coking coal unit, emerge or divest De Beers and Anglo Platinum, put nickel on care and maintenance or divest it.
This defence strategy was largely what BHP had suggested as part of its offer.
It will leave Anglo with a core of copper, high-quality iron ore and the Woodsmith polyhalite mine in North Yorkshire, where capex will be slowed until a strategic partner is syndicated.
Analyst Ben Davis at Liberum said Anglo has decided to "go nuclear" on its break up, pointing out that a big re-rating is not likely.
"Anglo American have shown that they don't need BHP's help to do the break-up, they will do it themselves," says Davis.
"We had been looking for some clarity on the strategic unlock, a probable sale of coking coal, but this goes well beyond anything we were looking for and many of the challenges on a break up remain."
He says a spin-out of Anglo Platinum will take at least 12 months and have the same regulatory and tax challenges as per BHP's plan, while De Beers is being sold at the bottom of the cycle with significant rough diamond price uncertainty.
All in all he says: "We do not think this will ultimately result in a multiple re-rating, it will still be a diversified miner and trade on a similar multiple it does today."
But RBC analysts calculated an Anglo that divested its iron ore, diamonds, manganese and platinum portfolio the remaining entity's circa-70% exposure to copper could trade at 1.5 times net assets.
Including forecasts for the potential divestments, AAL could command a share price of £31, RBC reckons, 13% higher than BHP's revised offer and 15% ahead of AAL’s current market cap.
JPMorgan said in a note published before the strategy update that Anglo's copper division is an "ace in the hole" after the group rejected the revised proposal from BHP yesterday.
BHP still has until 22 May to make a formal offer under the UK Takeover Code or walk away for six months.
JPMorgan said Anglo's "most likely value accretive strategic option available" would be a partial or full sale of its copper division, though it did not think Anglo’s board would communicate this option as part of its defence strategy.
"However we believe such a defence scenario could preserve Anglo plc’s corporate independence, potentially with a substantial and unrivalled capital injection, but without copper exposure."
Under a scenario where base metal prices improve, the US investment bank estimated the Anglo Copper business could be valued at $31 billion (£24.6bn) or £20.36 per share, giving Anglo PLC an implied £32.67 a share value.
With Anglo’s shares closing yesterday at £27.07, the JPMorgan view was that Anglo’s board has "powerful defence options that are significantly undervalued by the market".