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Posted on 19 June 2016, 6:56 PM

Anglo-American Set to Regain Lost Ground, According to Analysts

Topics: metals, mining
Other Insights on Related Shares: AAL.L

Anglo-American (AAL.L.), the diamond and precious metals miner, seems to have turned a corner, according to recent market indications, and has become again an attractive investment prospect. The mining giant, which among other ventures is the owner of the De Beers diamond conglomerate, had a torrid 2015. Having fallen victim to the worldwide fall in commodity prices, especially in iron ore, it reported a loss of 55% in Earnings Before Interest and Tax (EBIT), sliding from the $2.2 billion it reported in 2014 to $0.8 billion last year. Anglo-American was also in the midst of a restructuring aimed at reducing operating expenses and net debt which also impacted its top line figure. Its shares plummeted as a result.


Thanks to a restructuring exercise aimed at focusing on its most profitable areas of production, Anglo-American's performance has improved, becoming more appetising for investors. The group's activities have been streamlined in three areas: diamonds, platinum group metals (PGMs) and copper. Anglo American holds an 85% interest in De Beers, the world’s leading diamond company, which currently produces around a third of the world’s rough diamonds by value and is a significant trader for the remainder of the market. Anglo American’s interests in PGMs are held through its 78% owned subsidiary Anglo American Platinum, which is the world’s leading platinum producer with positions in the world’s two largest deposits, one in South Africa and one in Zimbabwe. The mining group has also concentrated its copper business around its interests in two of the world’s largest copper mines, both in Chile.


At the same time, Anglo-American has completed its programme of disposal of assets which were identified as being more of a drag to the business as a whole, to the tune of $2.1 billion of disposed assets, a sum which will rise to a cumulative total of $5-6 billion by the end of 2016. The recent $1.5bn sale of its niobium and phosphate mines has been part of this strategy. The group's management is also targeting a reduction of net debt to below $10 billion in 2016 from the 2015 value of $12.9 billion. All of these measures have contributed to get the mining company's in the good books of global investors.


Anglo-American has also been helped by a rise in the price of platinum by 13% so far this year, with further gains possible, although its still below the gains registered in 2014. Shares in the South African-based miner have risen by 113% so far this year, making it the top performer in the FTSE 100 over the last half-year. Analysts' forecasts reflect this progress: the consensus on forecasts for 2016 earnings have risen by 142% to $0.41 per share since the start of the year. Were Anglo-American to sell its coal business to either of its suitors, BHP or Glencore, its financial, and consequently, its market position should improve markedly.


Max Marioni


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