ANGLO American’s share price took a major mauling in 2023, especially in the fourth quarter after a year-end investor update in which it warned of lower production numbers in copper.
Investors were already out of love with the company after it committed to $1bn a year in capital expenditure on the $9bn Woodsmith fertiliser mineral project in an untested market. Would the group make back it’s money? Nope, has been the response from analysts.
While the timing and rate of China’s economic recovery remains hard to call, there are still reasons to be cheerful. Platinum group metal prices, through which Anglo is exposed via its 79% stake in Anglo American Platinum, are set to recover although, again, there needs to be note of caution on the extent of the recovery.
Similarly diamond prices have most likely bottomed out. In both ‘commodities’, destocking in the mid-stream and end-user markets is largely complete.
There is also speculation Anglo is opening the door to an equity partner on Woodsmith that will handily lessen its capital burden. Were it to sell a minority stake in Woodsmith, possibly to a sovereign wealth fund, the market will take a far sunnier view of Anglo’s cash flow generation and ability to pay dividends.
But there are few words of comfort one can give when the cycle turns down in mining. The best move any investor can make is choose stocks with quality assets, good jurisdiction, dependable, unskittish management and – cold comfort one realises – sit it out. As a tactic in the mining downcycle, Anglo is a good bet.
As a company with heavy reliance on South Africa’s infrastructure the further deterioration in Eskom’s performance as well as Transnet will hurt Anglo in 2024.
So too will political foment. Clamour to restructure on geographic lines when South Africa – which is due to hold national elections this year – turns nasty is not an unusual call when it comes to Anglo.
On the upside, copper could turn bullish this year. What looked like a supply surplus in the metal could become a deficit in 2024 which will give Anglo’s new Quellaveco mine a mighty boost.
A version of this article first appeared in the Financial Mail.
