Why Sirius Minerals investors should take a hard look at Anglo American

Anglo American could be set to buy Sirius Minerals, rejuvenating its potash mine project. But there is more than one reason to look at shares in Anglo American.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Coal is on its way out. Demand for copper is set to grow, and I think demand for iron is heading upwards too. Then there is potash — a combination of potassium carbonate and potassium salt, which is used as a fertiliser. Together, the potential in copper, iron ore, and possibly potash, are the reason why I think Anglo American (LSE: AAL) could be that rare thing, a good income stock with growth potential.

Anglo American has made a bid to buy Sirius Minerals (LSE:SXX), the British company desperately trying to raise money to develop a potash mine in North Yorkshire. The story of the British potash company and the lesson for investors is now well known, but just because the Sirius Minerals share price has fallen by around 90% in the last four years or so, it doesn’t mean the company’s core product is no good. Its problem was always that it needed money, lots of money to develop the mine, and was probably just too small to convince investors it had what it takes to make the project a success.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Now the Anglo American bid for Sirius Minerals could potentially save the mine. Should the mine one day fulfil its potential, it would be a good addition to Anglo American. While the deal may prove to be make or break for the potash mine, it’s just another deal for Anglo American.

The mining giant’s big problem is its reliance on coal. Anglo American has been moving into other areas and weaning itself off coal mines for some time, meaning that the company looks quite different than it did 10 years ago. The bid for Sirius Minerals is further evidence of this, and the company is investing in other areas too, such as the development of a copper mine in Peru.

It’s Anglo American’s non-coal-based mines that make it interesting. Recently, Deutsche Bank predicted a rebound in global demand for metals in 2020 and highlighted Anglo American as one of the potential beneficiaries.

In 2019 the company generated $2.6bn in revenue from copper, but this could increase dramatically with the new Peruvian mine. Copper is especially interesting because of its importance in electric cars and charging stations.

Last year, Anglo American’s revenue from iron ore was close to $4bn. I believe demand for iron is also set to rise in the long run. I am expecting massive new infrastructure projects worldwide as governments realise they can borrow at close to 0% and that infrastructure programmes can provide economic stimulus while raising long-term productivity. (Interestingly, coking coal, which is used in blast furnaces and is still a major Anglo American product, may be the last application of coal to go.)

Anglo American is also a big dividend payer, and the problem with many income stocks is that they operate in mature industries with limited growth potential and face disruptive threats from new technologies. Anglo American, with its traditional emphasis on coal, could so easily have been another example of such a company. Last year, Anglo American’s coal output was worth $3.2bn – important but far from vital. It’s the combination of investments into growth areas and good dividends that I believe make Anglo American so appealing.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Matt Baxter has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

This cheap share fell 30% last week. I’d buy now

This huge US corporation saw its shares crash by 30% last week. But I'd buy this surprisingly cheap share now…

Read more »

Various denominations of notes in a pile
Investing Articles

These 7 shares produce passive income of 7% to 11% a year!

Passive income is extra money I make without working. By buying these seven shares, I could earn 8.9% a year…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

6.6%+ dividend yields! 2 FTSE 100 dividend stocks to buy

Finding the best dividend stocks to buy requires extra care today as soaring inflation takes a bite out of shareholder…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

At 85p, are Rolls-Royce shares a slam-dunk buy?

The Rolls-Royce share price is in penny stock territory. Roland Head explains why he thinks this FTSE 100 stalwart looks…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

‘Big Short’ investor Michael Burry is buying this quality growth stock! Should I?

In the first quarter, Michael Burry bought more of this growth stock. Is this a hint that I should also…

Read more »

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Investing Articles

Stock market crash: here’s why falling prices is good news

Over in the US, a stock market crash is battering high-priced stocks. But I see falling shares as an opportunity…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

These 5 FTSE 100 shares crashed in 2022. I’d buy 1 today

Although the FTSE 100 index is flat in 2022, some Footsie shares have crashed hard this year. But I see…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How investors can boost their passive income when the FTSE is falling

Stock markets are plagued with fears right now. Here's why I firmly believe those fears improve our passive income prospects.

Read more »