ARTICLES

Anglo American

25 September 2018 By PDSNET

Conventional investment wisdom is that commodities are risky. This is because their prices are set in an international market which the mining company has little or no control over. With Anglo American this risk has be mitigated in a number of ways. Firstly the company has diversity of different minerals which will reduce the impact of any one mineral entering a bear trend. Secondly, in some markets, like the diamonds market, Anglo is such a large player through De Beers that it is possible to control pricing to some extent. Thirdly, the traditional mechanism to avoid risk is to have a very strong balance sheet with plenty of “headroom”. That way, if things turn bad you can ride out the storm. Anglo describes itself as a globally diversified mining company with a portfolio of world-class mining operations and undeveloped resources. Anglo reports quarterly, and in its production report for the first quarter of 2018, it reported a 4% increase in total production on a copper equivalent basis. The highlights of that were a 15% increase in diamond production at De Beers, a 9% increase in copper production, a 9% increase in palladium production, a 7% increase in platinum production, a 4% increase in iron production from Kumba and a 30% increase from Minas Rio. Metallurgical coal production was up 6%. This shows that the company has a wide range of precious and base minerals produced all over the world – which significantly reduces risk. It is true that commodity prices as a group tend to move in trends, but right now and since the beginning of 2016, that trend has been steadily upward. Under the stewardship of CEO, Mark Cutifani, the company has systematically reduced debt and divested itself of non-profitable operations so that now its balance sheet is almost ungeared and it has a portfolio of excellent mines with great potential and minimum exposure to governmental interference or union action. This situation is reflected in the chart:

Anglo American (AGL) December 2015 to September 2018 - Chart by ShareFriend Pro

You can see here that the share price has gone up six-fold in under three years and that it has recently found very strong support at around R280. We believe that the boom in commodity prices will continue – driven on by the economic expansion which began in earnest in America and which is now spreading to Europe and the East. We do not expect this economic boom to slow down any time soon – and it is creating a strong demand for metals and minerals, both precious and base across the world. So if you are looking for an investment which is likely to be more exciting than buying one of the big banks or property REITS, and which will benefit directly from the growth in the world economy, you could do worse than to consider Anglo American.

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