Our opinion on the current state of ANGLO(AGL)Anglo American (AGL), the risk normally associated with commodity stocks is mitigated in two ways. Firstly, the company has diversity of different minerals which reduces the impact of any one mineral entering a bear trend. Secondly, the traditional mechanism to avoid risk is to have a very strong balance sheet with plenty of headroom. That way, if things turn bad, you can ride out the storm. Anglo has such a balance sheet.
Anglo describes itself as a globally diversified mining company with a portfolio of world-class mining operations and undeveloped resources. It is true that commodity prices as a group tend to move in trends, and since the beginning of 2016, that trend has been steadily upward until the coronavirus caused markets to fall into a new downward trend in March 2020. The upward trend has now resumed, with a strong recovery already taking place.
An Anglo project is Quellaveco in Peru which is a massive copper mine in which Anglo owns 60%. It will have a very rapid payback period now that it has begun producing. It is costing $5,6bn to build which should be recovered in about 4 years - and then the mine has a life of 30 years.
We believe that the boom in commodity prices is continuing, and that COVID-19 is substantially behind us. Commodity prices will be driven on by the economic expansion which began in America and spread to Europe and the East. Of course, the conflict in Ukraine is pushing commodity prices up, especially precious metals, because of the heavy sanctions on Russia.
So, if you are looking for an investment which is likely to be more exciting than buying one of the big banks or property REITs, and which will benefit directly from the growth in the world economy, you could do worse than to consider Anglo American.
One of the factors holding the company back has been the poor availability of Transnet’s rail service, especially at Kumba. The company plans to get 100% of its energy needs from renewables in South Africa by 2023.
In its results for the six months to 30th June 2024, the company reported earnings before interest taxation depreciation and amortisation (EBITDA) of FWB:5BN - with reduced costs offsetting a 10% drop in its basket of commodity prices. Iron and copper contributed $3,5bn of the EBITDA. Debt was $11,1bn, and headline earnings per share (HEPS) fell to 42c from 135c (US) in the previous period. The company, "...delivered steady volumes and a 4% improvement in unit costs, while still facing weak cyclical markets for PGMs and diamonds."
In an update on the third quarter to 30th September 2024, the company reported copper production down 4% and iron ore up 1%. PGMs were down 7%, diamonds down 21%, and manganese down 45%.
Anglo remains a commodity share linked to the international prices of various commodities. Its restructuring will leave it with Kumba and its manganese interest in South Africa. On 11th September 2024, Anglo announced that it had sold 13,94m shares in Amplats for R7,2bn as part of an accelerated bookbuild. On 27th November 2024, the company announced that it had raised R9,6bn as a result of its accelerated book-build of 17,5m Amplats shares (6,6% of its issued share capital). The objective is to reduce its exposure to platinum group metals (PGM).
The share has broken up through its long-term downward trendline, but it remains a volatile commodity play.
