“Vedanta, India’s biggest mining group, expanded its international operations yesterday when it agreed to buy Anglo American’s zinc mines in Namibia, South Africa and Ireland for $1.34 bn.
The all-cash transaction will help Anglo pay down year-end net debt of $11bn and bring its gearing level lower.”
Source: Financial Times, May 11 2010
- Anglo American announced the sale of non-core assets in October last year. The company is trying to regain momentum by focusing more on the core competencies around iron ore, coal and platinum.
- Vedanta will pay all cash from a war chest of over $7 bln, enabling them to make more moves like this in the near future.
- Anglo American is burdened by its high gearing and resulting interest expenses.
- Anglo’s strategy of announcing non-core assets seems to be paying of. Five serious parties were bidding for the Zinc-assets, with Vedanta finally paying a large premium. Other companies bidding are likely to include Vale, Xstrata and Chinese companies.
- Vedanta is betting on a strong zinc-price due to demand for galvanization (coating steel with zinc to prevent corrosion). With this transaction zinc accounts for over 50% of the companies profits, which makes it very sensitive to volatility. The company will need to choose to continue its focus on zinc and copper or try to invest additionally in aluminium and/or iron ore in order to become more diversified.
- Vale will be likely be prepared to pay a larger premium for Anglo’s potash asset in Brasil. The company declared the potash business to be a key priority, recognizing the fertilizer business will drive growth in this are in the coming decade.