Image source: Anglo American plc
The Anglo American (LSE: AAL) share price has fallen 50% since peaking out in 2022. Over that period it has issued multiple profit warnings and slashed production targets. To compound shareholder woes, it has now cut the interim dividend by 83%. So has my faith in the miner been misplaced?
H1 results
Today (31 July) the company released its interim results and they didn’t make for very pleasant reading. Underlying earnings before income tax, depreciation and amortisation (EBITDA) fell 20% to $3bn. Losses widened to nearly $2bn.
The primary reason for the decline was ongoing challenging rough diamond trading conditions. The De Beers mine saw production cuts of 30%. This was on top of an impairment booked last year.
The diamond market is now seeing its most sustained decline in its history. The ongoing cost-of-living crisis, coupled with increasing interest in ethical sourcing, has resulted in a surge in popularity for lab-grown diamonds.
As part of its strategic reset, the company is working towards separating the business. However, with market conditions so tough, a sale soon looks unlikely. After all, De Beers has some of the best resources in the world and it isn’t going to just give it away.
Leaner company
Last year BHP made an audacious bid to buy Anglo American. The reason for the bid was obvious: its world-class copper mines, including Quellaveco, account for 3% of total world copper production and almost 6% of all known resources. Such a move forced the business to streamline its operations and sell-off a number of assets.
Earlier in the year, the miner spun off its platinum group metals business. Shareholders received shares in the newly formed company, Valterra Platinum. Anglo American continues to hold a 19.9% interest. Eventually, it expects to sell out. However, a recent surge in platinum prices, may make it reconsider.
The miner has also sold its steelmaking coal and nickel operations. That leaves it to concentrate on two commodities: copper and premium iron ore. It also has Woodsmith, its crop nutrients business, but capital expenditure has pretty much dried up there for now.
Copper
Like BHP, my continued interest with the miner is for its huge copper deposits. Demand for the red metal is set to soar over the next decade. Elon Musk recently released a number of images of the data centres being built to power xAI. What Immediately came to mind is: where’s all the copper going to come from to sustain the proliferation of AI?
I still maintain that most investors don’t really get the supply side of the copper equation. The low hanging fruit is gone and ore grades are in long-term decline. The simple fact is that its getting harder to find new copper resources. It’s little wonder that large-cap miners shy away from exploration.
Copper prices recently hit an-all time high on tariff concerns. But that’s a red herring to me. As demand for electricity soars, what I foresee is an eventual copper shortage and resulting price volatility. That’s the long-term opportunity in Anglo American and why I continue to add to my holdings on any significant pullbacks in the stock price.
