It’s $US41bn including debt. That’s the value of the assets BHP wants to buy from Anglo American, according to analysts from Jefferies who bet the UK target’s shares could increase 36 per cent over the long term.
In a research note, they split out all of Anglo American’s assets and what they assess are their value.
If BHP follows through with its offer (one that suggests the overall value of Anglo American is STG31.1bn (A$59bn) at STG25.08 a share), it will be getting a suite of heavily coveted copper projects worth $US25.4bn, a South American iron ore operation worth $US8.4bn and will leave behind platinum and South Africa-based iron ore operations worth $US10.9bn.
The company, which is listed in London but with deep South African roots, makes 43 per cent of its earnings before interest, tax, depreciation and amortisation from copper.
This part of the business is the jewel in Anglo American’s crown and is worth nine times its expected earnings before interest, tax, depreciation and amortisation for the 2024 financial year at $US25.4bn, according to analysts, at a time it is in scare supply and expected to be more in demand in the future.
Anglo American’s next most valuable part of the business is iron ore, from which it generates 25 per cent of EBITDA.
Its Minas-Rio iron ore project in Brazil is estimated to be worth $US8.4bn net present value and its diamonds business has a $US3.4bn net present value.
Metallurgical coal operations are expected to generate $US831m of annual EBITDA and, valued at four times that number, that suggests they are worth $US3.3bn.
Analysts have nickel on the books at $US588m and its Samancor manganese operation in Africa at $US1.4bn.
The analysts believe its Woodsmith potash project in the United Kingdom is worth $US1.3bn.
Corporate and exploration costs are estimated to be $US2.7bn.
That takes the value of the assets BHP is keen to buy, including debt, to $US41bn, according to Jefferies’ calculations.
It leaves the platinum business that BHP does not want to buy at $US6.4bn including debt, and the Kumba iron ore business in South Africa at $US4.5bn.
Overall, their calculations place a value on Anglo American of $US51.9bn including debt and they believe there is an upside or downside case of 16 per cent either way based on sum-of-parts calculations.
Stripping out the debt, their calculations place an equity value on Anglo American of $US38.6bn (STG30.1bn)
On their appraisal, Jefferies analysts believe that Anglo American is undervalued and think its share price may increase 36 per cent over the long term.
That’s if the Chinese economy gradually recovers from its 2022 collapse and it improves its operational performance.
Shares could rally 81 per cent if the Chinese economy surprises to the upside, commodity prices move 15 per cent higher than expected in the next three to five years and Anglo American rapidly delivers on operational performance.
But in a scenario whereby there is a prolonged Western world economic slowdown and weaker-than-expected economic growth in China, and the commodity prices average 15 per cent lower than forecast for the next three to five years, they believe its value would fall a further 30 per cent over the long term.
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