MINING stocks have delivered strong performances in the past year, but Anglo American is the perennial laggard in the class.

The reason investors are deterred from Anglo is a familiar one. Anglo is a conglomerate and trades at a discount because of this. Investors are also scared off Anglo because of its over-exposure to South African political risk.

The company yesterday set out about correcting those areas of concern with a new strategy that appeared to satisfy the market — even though it was somewhat short on detail.

Anglo American’s shares climbed 6 per cent to £16.58 as the company promised to return up to $1 billion (£560 million) to shareholders and pledged restructuring and disposals across businesses worth $12 billion, or 29 per cent of its market capitalisation.

Anglo’s plan is to become a focused mining company and free up billions of dollars of capital trapped in goldmining along the way.

First, it is to reduce its stake in AngloGold Ashanti; secondly it has recognised that its paper and packaging business, Mondi, has no place in the business. It is preparing that for “independence”, whatever and whenever that may be. It has also said that its Tarmac aggregates business must improve returns to investors and hinted that it may sell this, too, if it fails to do so. Finally, the company has committed itself to a capital management programme for the first time.

All these moves, however tentatively timetabled, represent a considerable about-turn, culturally and strategically, for the group. For instance, in reducing the 51 per cent stake in AngloGold, Tony Trahar, chief executive, is selling the very historical heart of the business.

Yet the logic is obvious. AngloGold’s shares trade at 43 times 2006 earnings. Yet Anglo American’s share price does not reflect that premium.

The disposals Anglo is looking at eventually could deliver $13 billion of cash, hence the disappointment in some quarters that only a paltry $1 billion capital return is proposed. Clearly Anglo would have the resources to bid for other businesses, although it appears to be ruling that out for now.

There is a concern that Anglo is concentrating on minerals at the top of the cycle, but on the whole the focus the restructured company will have outweighs this factor.

Execution of this plan will take time, but should release considerable value. Buy.

CAT

COMMON SENSE overcame ego yesterday when Abbott Laboratories effectively admitted that efforts to weasel out of a licensing deal with Cambridge Antibody Technology (CAT), the developer of one of its drug hopes, were ill-judged.

That the settlement, brokered on the steps of the Court of Appeal, plays to CAT’s advantage seems only fair. At an initial hearing last year, a High Court judge dismissed Abbott’s claim, arguing that it did “violence to the language of the agreement” between the two partners.

There is many a slip b’twixt cup and lip and, while CAT’s legal case was robust, it was right to avoid the lottery that is the British appeals system. Shareholders said as much, yesterday, lifting CAT’s shares by 25p to 700p.

The medicine at the centre of the dispute, Humira, is important not only to CAT and Abbott’s future relationship, but to Britain’s drugs industry. Despite the hype of a generation of scientists, the anti-arthritic jab remains the only medicine to come out of Britain’s biotech sector to reach sales of more than $1 billion (£564 million).

Under the deal, CAT will receive 2.6 cents on every dollar sale of Humira, as well as five guaranteed annual payments of $7.3 million. Under the old arrangement, CAT was due to receive royalties of about three cents on the dollar. CAT’s obligations to three co-partners are no longer an issue because Abbott has agreed to buy out the trio on CAT’s behalf for a one-off payment of $255 million.

Back-of-envelope calculations suggest that CAT will benefit from the new deal until sales of Humira top about $1.3 billion. By then, Abbott should have secured regulatory approval for a range of new applications for the drug, not least in Crohn’s disease, which should further bolster CAT’s income. On even cautious forecasts, the value of CAT’s royalties from Humira, together with its cash pile, far exceeds the company’s £362 million market capitalisation. That gives investors a free option on an early, yet promising collaboration with AstraZeneca to develop up to 26 new drugs over the next five years. Buy.

Wyevale

NEWS that Wyevale Garden Centres has terminated takeover talks with Cinven was about as welcome to investors as a bout of greenfly yesterday.

The shares, down 55p at 490p last night, now languish well below the 580p that Wyevale’s board wanted Cinven to offer. In the meantime, Laxey Partners, the hedge fund that put Britain’s biggest garden centre chain into play, remains squatted like a toad on Wyevale’s lawn, with a 27 per cent holding. So where do Wyevale shares go from here? Gary Favell has stepped up to permanent chief executive and will press ahead with plans to offload some of Wyevale’s smaller centres. Sales since the third week of September are up slightly on this time last year, which isn’t bad given the rest of the retail sector’s woes.

And there are still hopes for a bid. Cinven can’t return for six months, but Bridgepoint, the private equity group, is said to be interested. The shares are still trading at just over 15 times this year’s prospective earnings and are certainly not cheap. But they could be worth digging into on further weakness.

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