Anglo American shares keep falling! Should I buy?

Anglo American shares fell nearly 7% on Monday, extending losses over the past week.

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Anglo American (LSE:AAL) shares fell by nearly 7% in early trading on Monday. The drop came after the company reported issues around the extension of an operating licence in Chile. The stock has been on a downward trend over the past week having also released a disappointing trading update.

The London-headquartered mining giant is the world’s largest producer of platinum, accounting for around 40% of world output. The firm is also a major producer of diamonds, copper, nickel, iron ore and metallurgical and thermal coal.

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What’s behind today’s drop?

Anglo American stock fell on Monday after the miner said the Environmental Assessment Service of Chile (SEA) had recommended denying an extension to the firm’s Los Bronces copper project. The British miner had been engaged in an environmental assessment process for the Chilean project since 2019.

Anglo American wants to extend the life of the mine by expanding the current open pit within the Los Bronces operating site. It hopes to replace future lower-grade ore by accessing higher-grade ore from a new underground section of the mine.

“The SEA has confirmed that LBIP [Los Bronces Integrated Project] satisfies all relevant environmental regulation but bases its adverse recommendation on an alleged lack of information during the evaluation process to fully remove any doubts about a potential risk to public health,” Anglo said in a statement.

Environmental groups had said the project, located near the Chilean capital, Santiago, will impact a local glacier and water availability for the region.

Chilean authorities are expected to make a decision on the LBIP permit application within the next week.

Despite the news, Anglo said it was retaining its current copper production guidance for 2022 and 2023. However, the firm warned the guidance remains subject to water availability as well as the impact of Covid-19 on operations.

Should I buy?

Last week, Anglo American said it had downgraded its full-year production guidance for its major commodities while indicating that its first-quarter performance was “challenging“. It added that copper production declined by 13% to 140,000 tonnes during Q1, down from 160,000 tonnes for the same period last year. The firm said iron ore production dropped 19% yearly to 13.2m tonnes for the quarter. It noted that high rainfall and plant issues affected subsidiaries in South Africa and Brazil.

These operational challenges have seen Anglo shares fall considerably over the past week, down 16%. But it’s still 25% up over the past six months. Mining stocks had been on the rise this year on the back of soaring commodity prices.

However, there’s one particular risk that’s concerning me. And that’s a substantial correction in commodity prices. More lockdowns in China could really hurt demand for metals, which in turn will see commodity prices fall. I think this will soon start to weigh on mining stocks that have had a stellar year to date. For me, Anglo will have to drop further before I start considering it.

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James Fox 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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