For years, I’ve repeatedly argued that UK shares — particularly in the FTSE 100 — seem to be bargain buys. Already, 2024 has seen multiple takeover attempts by bidders seeking to buy undervalued UK businesses. And today (25 April), a blockbuster bid sent the Anglo American (LSE: AAL) share price soaring.
Anglo’s share slide
Footsie stalwart Anglo American is a multinational mining company. It sells a wide range of commodities worldwide, including coal, copper, diamonds, iron ore, nickel, platinum group metals, and coal for steelmaking.
However, environmental, social and governance (ESG) investors often shun leading miners’ shares, as they’re major polluters. Then again, demand for certain base and rare metals is set to rise as the global economy decarbonises.
History has taught me that like commodity prices, mining stocks can be very volatile, with Anglo American being no exception. Indeed, owning these shares in recent years has been like riding a roller coaster.
At its 52-week high, Anglo stock closed at 2,610.5p on 14 June 2023. It then crashed hard, bottoming out a low of 1,630p on 8 December before rebounding. Yesterday, the shares closed at 2,205p, up 575p (+35.3%) from December’s low.
Today, an unexpected takeover bid from the world’s largest mining company, Australian rival BHP Group, sent the share price surging. As I write, it hovers around 2,503.5p, valuing the group at £33.4bn.
Even after this sudden leap, this stock is up just 3.2% over one year and 25.2% over five years (excluding dividends). That’s hardly ‘shoot the lights out’ territory.
Mine!
For the record, my wife and I own Anglo American stock, paying 2,202p a share for our stake in August 2023. After today’s boost, we have a paper profit of 13.7%, plus a dividend of $0.41 (32.9p) a share due on 3 May.
Mining mega-deals come along every decade, but few have produced outstanding returns for shareholders. Clearly, BHP wants to buy Anglo American cheaply in order to boost its market share in copper production. This is expected to soar as electric vehicles and renewable energy gain in popularity — and Anglo owns major copper mines in Chile and Peru.
That said, Anglo’s earnings have plunged, hit by price weakness for De Beers’ diamonds and in platinum group metals. Also, BHP’s offer is complicated and difficult to value, involving the demerger and spinning-off of Anglo American Platinum and Kumba Iron Ore. These are listed in South Africa, which could be an issue for that nation’s government.
I’m not selling
Despite the 53.6% comeback for the share price since its December low, I have no intention of selling our holding in this mooted all-share bid.
Typically, the mega-merger deal playbook goes like this. An initial offer is rejected. The suitor returns with a higher bid, which may also be turned down. Sometimes, other bidders throw their hats into the ring, a final offer wins through, or the deal gets shot down and the target’s share price dives.
Personally, I’d like to see an agreed deal well above 2,610.5p, the 52-week high for Anglo shares. Analysts suggest any knockout bid could exceed £28 and maybe £30 a share. Hence, I’m happy to sit back and await developments, while collecting my cash yield of 3% a year!
