Tag Archives: Anglo American

There are still some gems among Anglo American’s junk heap

This week, Mike van Dulken and Augustin Eden from Accendo Markets mine a little deeper into Anglo American’s “reversification”.

Shares in Anglo American (AAL), a mining giant that’s always had diversity at the centre of its business model, were the worst performing on the FTSE 100 in 2015. Such diversity was key to maintaining profitability in all commodity price conditions, which had been good for so long. But it’s clear that there’s now just one set of conditions: awful. It’s now become necessary to divest and Anglo American is just the latest miner to announce its plan to streamline its exposure. In this case, we’ll see its portfolio reduced to just three products from nine.

High growth emerging markets are, of course, seen as a bellwether for the commodities space as a whole. It’s little surprise that a perceived slowdown in China has dented a steel industry that’s been producing at very high levels for years. Iron ore and coal, the latter also highly out of favour as an energy source, are thus prime candidates to be dropped from a highly diversified miner’s repertoire. Copper, on the other hand, is a commodity that’s able to move with the times, present as it is not just in heavy industry and infrastructure, but also essential in the microelectronics that will dominate any economy that makes the transition from manufacturing and export-led to consumption and services-led.

With precious metals miners clearly benefitting from renewed safe haven demand in early 2016 and a global car industry that’s not only too big to fail (forget about the banks – this one really is), but subject to tighter controls given global warming and a certain car manufacturer’s recent antics, it makes sense to keep producing these products. Furthermore, the luxury goods market may well be oversold at the moment as investors connect slowing EM growth with a corresponding slowdown in the growth of the middle classes in that part of the world.

It’s pretty clear that slowing economic growth – or “continued transition” – needn’t automatically mean people are getting poorer. If anything, the western lifestyle should only pervade emerging markets more as their populations, more exposed to international markets every day, are increasingly freer to strive for material success. So things like diamonds, if you’re lucky enough to be mining them, look good too.

As far as Anglo American is concerned, there are of course positives and negatives in all this. The company is the world’s largest platinum group metals miner and owns DeBeers diamonds. Tick! However, with such a large portfolio of things no one wants (iron ore, coal…) for sale, Anglo finds itself operating in an already oversupplied buyer’s market as it tries to offload them. That, unfortunately, puts a big fat cloud of uncertainty over the company’s efforts. Yet with the entire sector plagued by exactly this type of uncertainty, what’s new?

And with ratings agency Fitch having today downgraded the miner’s credit rating to junk, one might be spooked by the news and worried about the miner’s future. However, its shares remain on a northerly charge from January all-time lows, almost doubling on improved sentiment towards its turnaround strategy, and they haven’t even batted an eyelid at this morning’s downgrade (AAL shares are currently up 7 per cent, near their highs of the day). Post crisis, we all know the ratings agencies are last to the party.

This analysis was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com

Glencore’s update is better than expected, but miners are set for more pain

On a day like this, Glencore must still be plagued with shopper’s remorse over its badly timed acquisition of miner Xstrata back in 2013. The deal added masses of mining operations to the commodities trader’s business, which have struggled in the commodities price rout.

But the company, which is making grand efforts to reduce its staggering $30bn (£19.8bn) debt pile, today surprised the market with a more ambitious than expected plan to cut its borrowing and hopefully save its treasured investment grade credit rating.

It has increased its debt reduction measures to $13bn, up from $10.2bn, and has a new net debt target of $18-19bn by the end of 2016, an improvement from its previous target of low $20s bn.

It says it has $8.7bn of these cuts already locked in.

Safe to say, the market loved it. Glencore, which has seen its share price plunge by almost three quarters on the FTSE 100 index this year, gained 14 per cent by mid-morning trading.

“Glencore is well placed to continue to be cash generative in the current environment –
and at even lower prices,” said boss Ivan Glasenberg. “We retain a high degree of flexibility and will continue to review the need to act further as required.”

But will Glencore’s efforts be enough? With slowed growth in China and the eurozone severely denting demand, everyone can speculate but noone quite knows just how far commodities prices could fall. As Ivan suggests, there may be a need for Glencore to act further. I certainly do not think this will be the last of it. How can it be, when there is no end in sight to weak pricing?

As for the other miners, Anglo American made its own savage cuts earlier this week, shedding 85,000 staff, with all eyes on BHP Billiton to make the next move.

It seems likely that the latter will follow Glencore and Anglo and suspend its dividend as part of its cost cuts. The sector is hemorrhaging money and nothing seems quite big enough to stem the flow…