ii view: Anglo American has strong Q2 but not without issues
Pursuing an accelerated strategic push and with full-year production guidance largely unchanged. We assess prospects.
18th July 2024 15:51
by Keith Bowman from interactive investor
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Second-quarter production update to 30 June
Chief executive Duncan Wanblad said:
"We have delivered a strong second quarter performance overall as we continue to embed operational excellence across the asset base.
“We are focused on continuing to deliver our strategic priority of operational excellence - improving performance stability is driving increased confidence in operational plans, including production volumes and unit costs.
"In May, we announced our plan to accelerate our strategy. Work is progressing with the aim of substantively completing this transformation by the end of 2025."
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ii round-up:
Miner Anglo American (LSE:AAL) today maintained expectations for annual production of core commodities iron ore, copper and Platinum Group Metals (PGMs). But it cut forecasts for coal used to make steel given a recent fire at its Grosvenor mine in Australia.
A record performance for its Brazilian Minas-Rio iron ore operation was offset by third-party logistics constraints elsewhere, leaving second-quarter production flat year-over-year at 15.6 million tonnes. However, that's still on track to meet a full-year target of 62 million tonnes which is up from 60 million tonnes in 2023. Annual coal output is now forecast to be as much as 15.5 million tonnes, down from a previous estimate of up to 17 million tonnes.
Shares in the FTSE 100 company rose 0.5% in UK trading having come into this latest news up by 15% year-to-date. That’s better than an 18% decline for rival BHP Group Ltd (LSE:BHP) and ahead of a near 7% advance for the FTSE 100 index.
In May, Anglo fended off a takeover bid from Australia’s BHP, promising to increase productivity of core commodities copper and iron ore, as well as selling non-core assets such as coal mining operations.
Second-quarter copper production fell 6% year-over-year to 195,700 tonnes, again with a record performance at its Brazilian Minas-Rio operation offset by third-party logistics constraints. Anglo continues to target production of up to 790,000 tonnes in 2024.
Steelmaking coal production rose by a quarter year-over-year to 4.2 million tonnes, aided by higher output from the Grosvenor underground mine. Grosvenor production has subsequently been suspended given the fire which started in late June.
First-half results are scheduled for 25 July.
ii view:
Founded in 1917, Anglo today has operations in countries including South Africa, Chile, Australia, Brazil and in North America. Employing over 55,000 people, iron ore generated its biggest slug of profits during 2023, followed by copper, steelmaking coal and PGMs. It also owns 85% of De Beers, which in most years is the world's largest diamond supplier. Either a sale or listing of De Beers is part of Anglo's plan. Geographically, China generated most sales in 2023, followed by the rest of Asia, Japan and then Europe.
For investors, economic uncertainty for major customer China cannot be ignored, and geopolitical tensions have increased following the war in Ukraine. Operational challenges such as fires can hinder production, while Anglo’s forecast dividend yield of under 3% is less than rivals Rio Tinto Registered Shares (LSE:RIO) and BHP, each at over 5%.
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More favourably, BHP’s bid implies potential value at Anglo. Moves by management to simplify its portfolio and focus on assets like copper, premium iron ore and crop nutrients are underway. A diversity of commodities contrasts with the highly focused portfolios of rivals such as Fresnillo (LSE:FRES), while expected interest rate cuts later this year could help boost demand for its products.
In all, and despite continued risks, a consensus analyst fair value estimate near £26 per share is likely to at least keep the shares on investors' radars.
Positives:
- New management strategy plan
- Estimated future dividend yield of around 2.8%
Negatives:
- Uncertain economic outlook
- Operations are subject to the weather
The average rating of stock market analysts:
Strong hold
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