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Anglo American braces for looming threat of shareholder activism

Anglo American is braced for a possible showdown with activist investors, as the miner identified the risk of a major shareholder derailing its strategy as a concern. 
The FTSE 100 mining giant underlined the looming risk for the first time in its annual report, after billionaire metals magnate Anil Agarwal succeeded in building up a 21pc stake in the ?23.8bn group last year.
Mr Agarwal raised eyebrows by using his holding company Volcan Investments to secure his one fifth control of the company by borrowing from bond investors through a three-year note paying a coupon of 4.125pc.
The terms mean that Mr Agarwal, who is also the founder and majority owner of mining and metals conglomerate Vedanta Resources, will not reap the full benefit from Anglo American’s stratospheric share price rise.
Mr Agarwal denies any interest in investor activism, but his intentions have remained unclear to other investors and equity analysts.
A spokesman for Anglo American said Mr Agarwal “has been nothing but supportive of our strategy, management and performance”.
He added that the activism risk was highlighted in the annual report in reference to the wider trend towards shareholder activism.  
Anglo American braces for looming threat of shareholder activism

Mark Cutifani, chief executive officer of Anglo American

Credit:
Jason Alden
The UK market has emerged as a hotbed of investor uprising in recent years as hungry shareholder activists have grown in strength as they hunt out weaker companies.
The success of shareholder activism has brought activist funds into the mainstream with growing support from investors. Meanwhile, surging equity value in the US has forced the funds to look towards the London markets to find further value.
Anglo remains relatively undervalued in the market despite surging cash flows back into the business as it emerges from the commodities downturn of recent years.
Anglo offered its highest dividend since 2007 last year after boss Mark Cutifani succeeded in cutting the group’s net debt by 47pc in 2017, to $4.5bn (?3.2bn) - well below its target of $7bn - in part thanks to the 93pc higher cash flow deluge of $4.9bn.
Mr Cutifani’s pay packet climbed by almost 70pc last year to its highest since he took to the helm five years ago after shares awarded under a long-term bonus scheme vested. He took home ?6.7m in pay last year, up from ?4m for 2016, after earning an extra ?2.78m under a long-term incentive plan.
How a diamond is made
Anglo American said it would undertake a “proactive and regular engagement programme” with shareholders to explain the group’s strategy and portfolio.
The miner has also flagged the rise of synthetic and lab-grown diamonds as a potential threat to demand for its mined stones.
Anglo, which owns De Beers, said it plans to hit back at the rising tide of faux diamonds by developing new strategies to stop synthetic diamonds entering the industry masquerading as the real thing, and exposing the “misleading marketing” around those that are sold as laboratory grown. 
Anglo said it will plough more investment into marketing campaigns through the Diamond Producers Association to reassert “the emotional symbolism of diamonds” through the Real is Rare campaign.
It will also turn to blockchain and synthetic diamond detectors to reassure customers of the natural provenance of their diamonds.  
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