ii view: Anglo American shares shine as transformation continues

Shares in this mining heavyweight have comfortably outperformed rival Rio Tinto and the FTSE 100 index over the last year. Buy, sell, or hold?

6th February 2025 15:58

Keith Bowman from interactive investor

Fourth-quarter production update to 31 December

Chief executive Duncan Wanblad said:

“All of our businesses delivered their full year production guidance following another solid operational performance in the fourth quarter.

"Our focus on operational excellence is bringing far greater efficiency, underpinning our solid production performance in 2024. We are simplifying our portfolio at pace. This higher margin and more cash generative Anglo American will offer greater resilience through the cycle and possesses outstanding value-accretive growth optionality in each of our businesses."

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ii round-up:

Miner Anglo American (LSE:AAL) today detailed mixed production updates for key commodities copper and iron ore, but flagged an ongoing transformation process after it successfully spurned a takeover approach from BHP Group Ltd (LSE:BHP) last year.

Fourth-quarter copper production of 198 kilotonnes (kt) beat City estimates, while iron ore output of 14.3 million tonnes (mt) fell marginally shy of forecasts. Expected copper production in 2025 remains unchanged at up to 750 kt, as does the group’s iron ore forecast of up to 61 mt.

Away from production, the sale of the steelmaking coal business is expected to complete in Q3. A further reduction of its Anglo American Platinum shares had been made ahead of its expected demerger in the summer, while the sale of the nickel business is progressing alongside preparation to separate the De Beers diamond business.

Shares in the FTSE 100 company rose 6% in UK trading having come into this latest news up 28% over the last year. That’s in contrast to a 9% fall for fellow iron ore and copper miner Rio Tinto Registered Shares (LSE:RIO), while BHP is down 16%. The FTSE 100 index itself is up 14% over that time.

Anglo American is now moving to become a focused miner of copper, premium iron ore and crop nutrients. In 2020, it acquired Sirius Minerals, a Yorkshire miner of polyhalite, a type of potash.

Anglo’s production guidance for 2026 and 2027 sees copper output potentially climbing to 820 kt. Iron ore production is seen as high as 63 mt in 2027.

Realised price for copper over 2024 improved 8% compared to 2023. Those for iron ore fell 22% year-over-year.

Full-year results are scheduled for 20 February.

ii view:

Started in 1917, Anglo today has operations in countries including South Africa, Chile, Australia, Brazil and North America. Employing over 55,000 people, iron ore generated its biggest slug of profits in 2023 followed by copper, steelmaking coal and platinum group metals, or PGMs. It also owns 85% of De Beers, which in most years is the world's largest diamond supplier. Geographically, China generated most sales in 2023, followed by the rest of Asia, Japan and then Europe.

For investors, the current push to transform and enhance shareholder value will see the diversity of commodities provided shrink. Economic outlook uncertainty for major customer China cannot be ignored. Factors outside of management’s control such as the weather can hinder production, while Anglo’s forecast dividend yield of under 3% is much less than at rivals Rio and BHP.

On the upside, the company’s transformation should help give clarity regarding the value of the remaining businesses. A focus on improving productivity persists. Geographical diversity in terms of customer sales should not be forgotten, while expected interest rate cuts this year may help boost demand for the company’s products.

In all, a sizeable re-rating of the miner’s valuation over the last year may now leave Anglo shares up with events. That said, continued exposure to copper and iron ore, used widely by industry globally, likely means Anglo will remain a consideration for investors with a long-term view.

Positives:

Emphasis on shareholder value
Focus on costs

Negatives:

Uncertain economic outlook
Subject to currency movements

The average rating of stock market analysts:

Hold

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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