Shares in Anglo American (LSE: AAL) rose by 6.5% yesterday after the company announced the disposal of its Rustenburg platinum mines for around £215m.
The sale has been welcomed by investors as the mine was loss-making and it fits in with the company’s strategy of selling off non-core assets. It also reduces Anglo American’s exposure to what was its domestic market, South Africa, which is seen by many investors as a challenging place to operate as a miner, with power outages, low productivity and employee tensions causing production to be somewhat less than hoped for in recent years.
The deal is structured so that a third of the £215m is paid upfront in cash or shares, with the remainder to be paid from the free cash flow of the mines over a six year period. At a minimum, Anglo American will receive £215m in total, but this could be higher if there is a pickup in free cash flow at the mine, with Anglo American being entitled to receive 35% of free cash flow during the period.
Looking ahead, Anglo American continues to offer stunning value for money and superb income prospects. For example, it trades on a price to book (P/B) ratio of just 0.45, which indicates that a very wide margin of safety is on offer so that if asset writedowns are required in future, its share price may not be hit all that hard. And, with Anglo American currently yielding 7.1% from a dividend that is covered 1.3 times by profit, its appeal as an income stock is huge.
Also trading on a super-low valuation is Lonmin (LSE: LMI). In fact, it had net assets as at the end of March 2015 of just under £2.2bn and yet its market capitalisation is currently just under £150m. That puts Lonmin on a P/B ratio of less than 0.1, which is very difficult to justify unless the company is about to report a huge loss through a vast asset writedown.
Certainly, losses are forecast for both the current year and for next year, but they are due to be relatively small. For example, Lonmin’s pretax losses are forecast to be £90m this year and £8m next year. As a result, they are hardly sufficient to cause a collapse in the company’s net asset value which means that, for investors who can live with high risk, Lonmin appears to be a bargain that could deliver superb capital gains in the long run.
Meanwhile, Russia-focused Amur Minerals (LSE: AMUR) today released positive news flow regarding its Flangovy drilling programme. The update stated that a confirmation drill hole indicates that the step out discovery hole previously reported has extended the size of the Flangovy resource by around 400m. This adds substantially to the resource potential of the Maly Kurumkon/Flangovy deposit and, as such, it bodes well for the company’s future potential. And, while there are logistical and financing questions that remain unanswered, Amur Minerals has a superb asset which could deliver high levels of profitability in the long run.
However, while it appears to be worth buying, the sheer value on offer at the likes of Lonmin and Anglo American seems to make them the preferred choice at the present time. Furthermore, the bonus of owning Anglo American is that it is highly profitable and pays a large dividend, thereby making it the most obvious choice for long term investors right now.
