Oppenheimers reposition

SA's 'royal family' and their former flagships look beyond SA mining sector, writes Jana Marais

They were SA's royalty with a monopoly on the economy through two of the biggest companies. But steady disinvestment has seen the Oppenheimer family lose its regal status.

The Oppenheimers, and Anglo American and De Beers which brought them fame and fortune, have been diversifying their exposure away from SA's declining mining industry.

Amid the concern of international investors about political and regulatory risk, threats of nationalisation, rising labour and power costs, and rail capacity constraints, the Oppenheimers have sold 19.1million, or more than 40%, of their Anglo shares in the past four years.

With analysts and investment banks, most notably Bank of America Merrill Lynch, urging Anglo to limit its SA exposure - and even split its assets into a local and international business to unlock value for investors - the group's SA exposure has waned over the past 20 years.

Anglo, the conglomerate that dominated SA's economy before 1994 with stakes in 98 JSE-listed companies in almost every sector and an estimated 1300 unlisted companies, now holds shares in only four: Anglo Platinum, Kumba Iron Ore, Exxaro Resources (Anglo's 10% will be sold in 2016) and Palabora Mining, according to Who Owns Whom research.

The most significant new investment in the pipeline is Kumba's R8.5-billion Kolomela mine, which is expected to start production in the first quarter next year.

In 2009, Anglo sold its last shares in AngloGold Ashanti, the country's largest gold miner, and divested from Tongaat Hulett and Hulamin. Last year it sold its zinc assets to Vedanta Resources, and wants to sell steel manufacturer Scaw Metals.

Anglo had limited overseas exposure during apartheid, but this has changed dramatically in the past 20 years. The group now enjoys a presence in Brazil, Chile, Peru, Brazil, Australia, Canada, Colombia and Venezuela. Where it owned stakes in everything from newspapers and banks to brewers and furniture retailers, it now focuses almost exclusively on mining and natural resources.

It retains ownership of Vergelegen, the Somerset West wine estate established in 1685 by Willem Adriaan van der Stel, then governor of the Cape.

To the annoyance of international bankers and analysts, though, its SA operations still generate about 40% of operating profit. Other global miners such as Rio Tinto and BHP Billiton, have much less exposure to SA, and this counts in their favour when shares are priced, says one London-based analyst.

The performance of SA's mining industry, which provides 500000 jobs and contributes 8% to GDP, has long been a concern. While the country's mineral wealth is put at a staggering $2.5-trillion by investment bank Citi, indicating huge potential for growth and job creation, SA's mining industry seriously lags that of other resource-rich countries.

A study by consultancy Global Insight found that in the 2000-2008 commodities boom SA's mining industry shrank by 1% every year in dollar terms, while mining in China grew by 19% a year, by 10% Russia and 8% in Indonesia.

A McKinsey study found SA's mining sector, in real 2005 rand terms, shrank to R92-billion in 2009 from R103-billion in 1993.

"I think Anglo is well aware it needs to limit its exposure to SA, where political risk is a big concern for investors," said a London-based analyst.

Last week, De Beers, in which the Oppenheimers hold 40% and Anglo American 45%, sold Finsch, SA's second-largest diamond mine, having sold the Cullinan mine in 2007 and Jagersfontein last year. It also hopes to sell its Namaqualand mines.

De Beers says the assets no longer fitted optimally in its strategy. "These assets would better suit other investors," said spokesman Tom Tweedy.

Yet Tweedy said De Beers was conducting a pre-feasibility study for underground mining at its Venetia mine in Limpopo at a cost of R10-billion to extend its life beyond 2040. The group, which has major operations in Botswana and Namibia, conducted geometrical surveys in the past 12 months with the view to further exploration in SA, he added.

James Teeger, MD of E Oppenheimer & Son, said the Oppenheimers are "fully committed" to investing "significant amounts" in SA and the rest of the continent. The Anglo share sales were for "portfolio rebalancing" and have "nothing to do whatsoever with the family's investment appetite for SA".

But he added that further investments in SA "will not necessarily focus on mining". Teeger said the company was looking at investments in small to medium-sized companies across sectors, but not mining as it wants no "conflict of interest" with Anglo or De Beers.

Capital is committed for investing on the continent, and a team is seeking opportunities in other parts of the world.

At Friday's JSE prices the family's Anglo stake was worth nearly R9.8-billion.

Forbes magazine puts the stake at about 27% of the family's estimated net worth of R36.5-billion.