Stock of the day 23/07/2015 – Anglo American PLC

It’s not a great time to be a mining stock; it’s especially not a great time to be Anglo American, which sank to a 13-year-low on Wednesday. The multinational miner announces its half year report on Friday.

The mining slide that began in mid-2014 hasn’t really shown signs of abating even if there have been moments so far this year where hopes of a turnaround began to creep in. The stock opened 2015 at £12.08, a far cry from the £16.50 peak of 2014 (which in itself was light years away from the £34 price it was trading at back in the first few months of 2011). It had slumped to just above £10 by the middle of January, but a month later things were looking slightly better, with Anglo American back up to £12.50.


(Source: IT-Finance.com 23/07/2015)

However, this was to be its 2015 high, and since then, bar a brief resurgence across the second half of April, the stock has been on a near permanent decline. The latest fears of instability in China, something that has only increased in the last few months, sparked Wednesday’s sell-off, and after hitting the aforementioned 13 year nadir of £8.05 the stock is current trading at £8.23 (IT-Finance.com, 23/07/2015).

So what is Anglo American’s problem? On the macro level, commodities are in general having a bit of a horror show at the moment. Pressures from the muscular US dollar, the market instability and general economic slowdown in China, as well as Monday’s gold sell-off, and subsequent 5 year lows, have all made metals look even more unattractive, creating a perfect storm of bearish trading around the miners.

Yet those were reasons why the entire sector has looked shaky of late; Anglo also has its own unique reasons why it has seen such a dramatic tumble, the most costly of which was the news that it would not be paying an interim dividend. Whilst this update wasn’t exactly a surprise, since the company’s 70% owned subsidiary Kumba Iron Ore had already announced the same measures, it still led to an unpleasant Wednesday for Anglo. In 2014 Kumba’s earnings made up 39% of Anglo’s underlying operations profit, so a 61% drop in earnings for the subsidiary has understandably hit its parent company hard.

Beyond the Kumba calamity and Anglo’s iron ore issues aren’t over; its Minas Rios is expected to heavily contribute to the company’s expected £2.6 billion write off for the first half of the year due to the collapse of the iron price. The Brazilian mine has already caused £4.8 billion in write offs in the past 2 years, and with the added headache of the fall in price in its Australian coal assets, the struggles Anglo American has faced in the past few years are showing no signs of disappearing.

Investors will also be keen to hear any news on Anglo’s problematic platinum mines, namely the strike-filled, and imaginatively titled, South African Anglo American Platinum. An asset sell-off in the platinum sector was meant to be a key cornerstone of CEO Mark Cutifani’s turnaround plan, but so far Anglo has faltered on the issue, delaying its decision on what to do about the mines beyond its own self-imposed deadline.

Anglo American has a consensus rating of ‘hold’ with an average target price of £10.87.

Thursday’s stock news:

After the rumour drum began to beat at the start of the week, Pearson finally addressed reports that it is preparing to sell the Financial Times this Thursday, stating that it was in ‘advanced discussions’ in regards to offloading the paper, but that there is ‘no certainty’ of a deal. The German Axel Springer, owner of Bilt, is now favourite to buy the pink paper, with Bloomberg, Thomson Reuters and, perhaps surprisingly, Buzzfeed all in the running. Regardless, investors were clearly pleased at the news, pushing Pearson 2% high after the news came out.