ii view: Anglo American numbers lack sparkle

First-quarter production update to 31 March

Chief executive Duncan Wanblad said:

"We are driving operational excellence across our assets, focusing on stability and effective cost management as levers to deliver significant value through the cycle. We are progressing through our asset review to optimise value by simplifying and improving the overall quality of the portfolio. 

“With copper now representing 30% of our total production, and having the benefit of several well-sequenced and value-accretive copper growth options within our portfolio over the medium-term, we are also setting up the business to deliver and grow into the major demand themes."

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ii round-up:

Diversified miner Anglo American (LSE:AAL) today detailed broadly flat first-quarter production, with full-year 2024 guidance for diamond output lowered given inventories are more than sufficient to meet demand. 

An 11% increase in copper production and a 7% improvement in coal output helped counter a 23% fall in rough diamond production and 7% decline in Platinum Group Metals (PGMs). 

Shares in the FTSE 100 company fell 3% in UK trading having come into this latest news up by close to 10% year-to-date. That’s better than a 4% gain for the FTSE 100 index and in contrast to an 8% retreat for rival Rio Tinto Registered Shares (LSE:RIO). 

Anglo works in countries including South Africa, Chile, Australia, and in North America. Sufficient inventory levels for rough diamonds resulted in mining partner De Beers lowering annual production guidance to 26-29 million carats from 29-32 million.  

Higher throughput at Anglo’s Quellaveco mine in Chile aided copper output, with an additional 3.8 million tonnes of coal produced by operations in Australia. 

Iron ore production was flat year-over-year at 15.1 million tonnes. So was nickel production of 9.5 kilo tonnes.

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the update. A second-quarter trading statement is scheduled for 18 July, with interim results on 25 July. 

ii view:

Started in 1917, Anglo American today employs over 55,000 people. In 2023, iron ore generated its biggest slug of profits, followed by copper, coal and PGMs. The miner produces around one-third of the world's platinum output and close to a third of its palladium supply. It also owns 85% of De Beers, which in most years is the world's largest diamond supplier. 

For investors, the uncertain economic outlook, particularly for commodity user China, continues to overshadow the industry. Western geopolitical tensions with China, Anglo's biggest customer, have also heightened. The growth of electric vehicles is likely hindering demand for PGMs used to reduce fossil fuel emissions in catalytic converters, while a forecast dividend yield of just over 3% is less than rivals Rio and BHP Group Ltd (LSE:BHP) each at over 5%. 

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On the upside, its diversity of commodities contrasts with the more focused portfolios of rivals such as Fresnillo (LSE:FRES). Mined commodities include copper and nickel used in energy transition products such as batteries. Expected interest rate cuts later this year may help boost demand for commodities, while there is a modest dividend.

On balance, and despite ongoing risks, the shares will likely remain on investor radars given exposure to an eventual world economic recovery.

Positives: 

• A diversity of commodity products 
• A sustainable mining plan

Negatives:

• Uncertain economic outlook
• Operations are subject to the weather

The average rating of stock market analysts:

Strong hold