Anglo Coal is a very boring business, but it would fit so well for 3/4 the companies who would be interested in Anglo. Anglo Coal is tied into South Africa firmly, since 37% of the coal business is from mine mouth coal mines directly servicing power plants owned by Eskom. These are great little operations that make lots of money, are simple to run, but are more a form of selling electricity than coal. They are also captive to Eskom Power Company, which makes the power, and the country where the ore bodies are located for a market. This is not like the diamond business where you can move the product when and where you want it.
But at 96mt/y of coal production, they are a significant player, being among the top six largest producers. The two companies that would want this business the most are Xstrata and BHP, as it would add significantly to their complementary asset bases in South Africa.
What would be on offer if someone were to buy Anglo? 49mt/y of traded (unclear how much is seaborne) steaming coal, 11mt/y of coking coal, and 35mt/y mine mouth coal production. From Xstrata’s own numbers, if they got it, they would solidify their lead in seaborme steaming coal, and more than double their position in coking coal. For BHP it would make it the leader in seaborne steaming coal, and completely lock in leadership of the coking coal market. The mine mouth stuff is also good for both companies as they are already both in the business in South Africa.
The value here again is huge to both companies. There have to be significant synergies (I hate that word) in their operations, and the market concentration would not hurt either one of them. Valuation is tough, but I think this business should be worth 15-20x earnings or a 7-5% discount rate, or in other words, $13-17b USD. In any case if either BHP or Xstrata bought this business they would be keeping it. The only companies that would sell part of it are CVRD and Rio Tinto, who would sell the South African coal operations to either BHP or Xstrata, and keep the South American and Australian assets. Neither CVRD nor Rio Tinto has a South African coal operation and I do not believe theywould want to start when there will be willing buyers.
Good value here for any buyer really.
