Interactive Investor

ii view: Anglo American shares slump 10% – here’s why

Shares in this FTSE 100 miner are down significantly year-to-date and half their 2022 peak. We assess prospects.

8th December 2023 12:38

Keith Bowman from interactive investor

Trading update

Chief executive Duncan Wanblad said:

“We took early action in 2023 to increase business resilience in the face of ongoing economic and geopolitical volatility and the current cyclical weakness in Platinum Group Metals (PGM) and diamonds.”

“Operationally, we are improving cost performance and cash generation by reconfiguring a number of our assets to adjust the production profile to near term constraints and market conditions, and thereby also protect longer term value.

“Looking ahead, the fundamental supply and demand picture for many metals and minerals is ever more attractive.”

ii round-up:

Mining mammoth Anglo American (LSE:AAL) today accelerated its push to cut costs, reducing its expected production output for 2024 as it continued to battle tough near-term economic headwinds. 

An additional $500 million of cost savings are now to be targeted on top of its existing $500 million goal by the end of 2024, aided by a 4% reduction in production volumes for next year. As a result, City analysts now expect to cut forecasts for adjusted profits in 2024 by between 10% and 15%.   

Shares in the FTSE 100 company fell as much as 10% in UK trading having come into this latest news down by almost a third year-to-date. That’s similar to Mexican silver miner Fresnillo (LSE:FRES) and much worse than the unchanged performance for the FTSE 100 index. 

Anglo American’s commodities include platinum group metals, or PGMs such as platinum, palladium and rhodium, along with others including copper, iron ore and diamonds via its partnership with De Beers. 

Anglo, which has operations in countries including South Africa, Chile, Australia and North America, expects 2025 production to also fall by a further 3%, but to then increase by 4% over 2026 given higher volumes in copper, iron ore, steelmaking coal and diamonds.  

Capital expenditure on projects will now be cut by $0.8 billion in 2024 to $5.7 billion, reduced by $0.4 billion in 2025 to $5.7 billion and held in 2026 at $5.3 billion with unapproved projects shelved for now.

A fourth-quarter production update is scheduled for 8 February. 

ii view:

Started in 1917, Anglo today employs over 100,000 people. During 2022, PGMs accounted for its largest slug of revenues, followed by iron ore, diamonds and copper. The group produces around one third of the world's platinum output and close to a third of its palladium supply. It also owns 85% of De Beers, which in most years, is the world's largest diamond supplier. 

For investors, the tough economic backdrop, including still elevated interest rates, cannot be ignored, and the growth of electric vehicles is likely to hinder demand for PGMs used to reduce fossil fuel emissions. Western geopolitical tensions with major customer China have worsened, while the forecast dividend yield of just under 4% is less than rivals Rio Tinto Registered Shares (LSE:RIO), BHP Group Ltd (LSE:BHP), and Glencore (LSE:GLEN) at 5% or more. 

More favourably, Anglo's diversity of commodities contrasts with the more focused portfolios at rivals such as Antofagasta (LSE:ANTO). Reduced output of copper over the near term may give time for its price to rise over the medium term as the global economy recovers, while a push towards climate friendly commodities and away from more harmful ones has been pursued.

In all, and despite room for caution, potential US interest rate cuts next year and a hoped-for recovery in global economic performance should offer something for investors with a longer-term views.  

Positives: 

  • A diversity of commodity products 
  • A sustainable mining plan

Negatives:

  • Uncertain economic outlook
  • Operations are subject to the weather

The average rating of stock market analysts:

Cautious buy

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