Diversity doesn’t come cheap, unless you are Anglo American
2024 has come with no fortune for the miners– with a low of 7.8% (in ytd terms) vs. the 6.9% gain for AlphaValue universe stocks, even with Chinese growth/revival worries again being the bone of contention. Diven by Iron ore, the sector’s stellar H2 23 rebound is being unwound this year. Except when it comes to Anglo American, with its shares being hammered to three-year lows in late-2023 (and not far from their pre-COVID levels). Besides demand risks, the firm has also been a victim of challenging operating conditions in emerging/frontier markets such as LatAm and Africa accounting for greater than 50% and 30% of the non-current asset exposure.
A tale of contrasting (copper) fortunes
Thanks to their Quellaveco copper mine development in Peru, Anglo American could get a re-rating over the years (especially in the post-pandemic era). It is the dearth of new biggish copper investments along with prolonged disappointments on much-awaited mega-projects (like Oyu Tolgoi) have made Quellaveco a prized new capacity addition. Also, with copper accounting for more than 40% of gross assets, Anglo is now regarded as the great red metal proxy (amongst AV diversified miners).
But even that couldn’t save them anymore, with the management announcing a major downgrade to its medium-term copper production targets in late-2023 (besides moderation for other commodities), the markets were spooked, with Anglo’s shares plummeting almost 20% in a single day. Additionally, a series of other concerns through the year had been unnerving as well, such as: 1. Intensifying secular demand risks for PGMs amid increasing adoption of EVs
2. Challenges for diamonds – both due to macro concerns (in China) and from the availability of lab-grown diamonds
3. Waning (met) coal pricing excesses
4. Worsening nickel markets (although just c.3% GA exposure)
5. Big money being spent on the Woodsmith crop nutrient asset, whose competitive positioning vs. existing potash plays is yet to be proven.
Ironically, at present, Anglo’s diversity is also its biggest problem.
A tale of contrasting (copper) fortunes
Thanks to their Quellaveco copper mine development in Peru, Anglo American could get a re-rating over the years (especially in the post-pandemic era). It is the dearth of new biggish copper investments along with prolonged disappointments on much-awaited mega-projects (like Oyu Tolgoi) have made Quellaveco a prized new capacity addition. Also, with copper accounting for more than 40% of gross assets, Anglo is now regarded as the great red metal proxy (amongst AV diversified miners).
But even that couldn’t save them anymore, with the management announcing a major downgrade to its medium-term copper production targets in late-2023 (besides moderation for other commodities), the markets were spooked, with Anglo’s shares plummeting almost 20% in a single day. Additionally, a series of other concerns through the year had been unnerving as well, such as: 1. Intensifying secular demand risks for PGMs amid increasing adoption of EVs
2. Challenges for diamonds – both due to macro concerns (in China) and from the availability of lab-grown diamonds
3. Waning (met) coal pricing excesses
4. Worsening nickel markets (although just c.3% GA exposure)
5. Big money being spent on the Woodsmith crop nutrient asset, whose competitive positioning vs. existing potash plays is yet to be proven.
Ironically, at present, Anglo’s diversity is also its biggest problem.
For more information reach out to our team at research@alphavalue.eu.
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