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It’s down more than half since March, fuelling speculation that it is ripe for a takeover. From Moneyweb.

Volatile beast: Anglo American has lost over $30bn of its value to date in 2023. Image: Chris Ratcliffe/Bloomberg

Anglo American’s share price is down by more than half the peak it reached in March this year, losing close to 20% this week after announcing plans to cut overall production by about 4% in 2024 and a further 3% in 2025.

ReadAnglo American suffers biggest drop since global financial crisis

“This looks like an over-reaction to me,” says Peter Major, director of mining at Modern Corporate Solutions.

“We’ve seen Anglo pummelled before, like in 2015 when it dropped to R55, and 2008 when most mining houses fell about 80%.

“I’m pretty shocked by the latest price drop because I think the company has never had a better person in charge than Duncan [Wanblad], who has taken a very conservative approach to capital spending and forecasting,” he adds.

“This doesn’t really make sense unless you believe that the supercycle is over, or that we wake up one day and find out that we don’t need platinum or diamonds, copper, iron ore or some other mineral it is involved in mining – which I think is unlikely.

“There are many credible people who believe the commodities supercycle has another 20 years at least to run.”

Production cuts

The big production cuts will come in platinum group metals (PGMs) and copper, which are expected to be 13% and at least 21% lower in 2024. 

De Beers is likely to maintain diamond production at between 29 million and 32 million carats for 2024 because many of its costs are fixed, according to CEO Al Cook.

Wanblad told analysts last week that he expects a diamond recovery in 2024 despite lower sales in the second half of 2023 due to waning consumer spending and weak growth in China.

The production cuts announced by Anglo are part of a $500 million (R9.5 billion) cost-paring exercise.

PGM returns are at the lowest in 30 years, and a simple reversion to the mean would suggest a recovery cannot be far off.

The graph below shows the long-term price of PGMs, which is currently about 35% below its 35-year mean.

South African PGM prices ($/ton) UG reef

Source: MCS

There’s no doubt an SA Inc penalty is baked into the current Anglo share price, given the well-publicised problems with Eskom and Transnet, but the more serious operational issues centre on its Quellaveco copper mine in Peru, which has run into technical difficulties that seem to have surprised analysts.

The issues at Transnet are felt hardest at Anglo-controlled Kumba Iron Ore, which has decided not to increase production until at least 2026, given the logistics nightmare of getting its ore from the Northern Cape to the Saldanha port.

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Volumes are already down 15% since 2019. Iron ore production will come in at 35-37 million tons in 2024, about two million tons lower than previous guidance, allowing for a drop in unit costs to $38-40/t over the next three years.

Not the only one

Terence Hove, senior financial market strategist at Exness, notes that Anglo American is not the only global mining house to report lower profits and returns for the second half of 2023.

“Rio Tinto, Teck Resources and Glencore have also reported lower-than-expected profits and returns for the same period. But Anglo American has underperformed its peers, leading to a number of financial institutions, including Jefferies and Barclays, to cut the stock price target, and that drive[s] the share price lower, sparking rumours of a possible takeover bid. Anglo has lost over $30 billion of its value to date in 2023.”

Rio Tinto’s share price touched A$130 this week, the highest in two years. Glencore’s share price is down just 15% from its January 2023 peak. BHP’s share price is up more than 10% since November.

Anglo v Glencore v BHP 

Anglo’s share price to net asset value is about 1, compared to 3.56 for BHP and 1.65 for Glencore, suggesting Anglo is trading close to what its assets are worth.

This has fuelled the takeover talk, with brokerage firm Jeffries suggesting Glencore as a potential buyer for Anglo.

In November, Glencore announced its binding agreement to acquire 77% of Canadian group Teck Resources’ steelmaking coal business for about $7 billion (R132 billion).

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Wanblad expects Anglo’s overall production to fall around 4% in 2024, with unit costs falling about 2%. Production will decrease a further 3% in 2025 and increase 4% by 2026. Capex would be shaved by $800 million in 2024 and $400 million in 2025 to $5.7 billion in each of the next two years.

A key concern for analysts is the $4.8 billion (R91 billion) Woodsmith mineral fertiliser project in the north-east of the UK, which will absorb a good part of this capex over the coming years. Questions remain about its ability to meet expected returns as production ramps up in the next few years.

None of this appears to have excited the market and is not the reaction Anglo was expecting or hoping for.

It nevertheless reaffirms the astonishing volatility of mining stocks, and Anglo in particular, in both good times and bad. It’s no wonder Anglo is a favourite for day traders on the hunt for volatile beasts that can move 10% or more in a day.