High-quality, blue-chip FTSE 100 companies don’t generally exhibit huge volatility swings. This is more often a characteristic exhibited by smaller-cap stocks. Mining companies, however, are a whole different ball game. But for me a roller-coaster share price can often present opportunity.
Business in flux
The last couple of years have been miserable for Anglo American (LSE: AAL) shareholders. Multiple profit warnings, loss-making lines of business, and soaring costs have seen its share price fall over 40%.
It got so bad that last year BHP attempted to take over the firm. In the end, the Board decided to back the CEO’s radical turn-around plan, the largest in its 108-year history.
As part of its portfolio simplification, it has already divested itself of its steelmaking coal business for $4.8bn. Later in the year it will receive $500m upon the sale of its nickel assets.
Platinum and De Beers
One of the crown jewels in its portfolio is platinum group metals. Here, the sale is being handled by means of a demerger. The standalone business is expected to begin trading on the London Stock Exchange in June.
One of the reasons it chose to list in London was to limit risk of flowback. If the stock had been registered on a foreign stock exchange, institutional investors may have been forced to sell, causing the stock price to plummet. In addition, Anglo will initially retain 19.9%, further protecting shareholders.
One business it’s still attempting to offload is diamonds. A surge in popularity for cheaper lab-grown diamonds has decimated prices over the last few years.
De Beers has an iconic brand and is an undoubted global leader in the industry. I personally don’t expect a buyer to emerge until prices recover somewhat. What Anglo wants to avoid is giving the assets away on the cheap.
Simplified portfolio
Once the transformation is complete, Anglo it will be left with two assets contributing to earnings: copper and iron ore. Woodsmith, its crop nutrients offering, will remain part of its portfolio but is unlikely to move to production this decade.
Copper is its prized asset; it was the primary reason BHP swooped in the first place. Its three top mines account for 6% of known global copper reserves and resources. By the early 2030s, it expects annual production to exceed 1bn tonnes.
Demand for copper is predicted to surge. For example, EVs require four times as much copper as a traditional internal combustion engine. The pathway toward EV adoption may be unclear, but long-term adoption trends remain favourable.
Probably the largest growth driver will come from electricity grid expansion. EVs need power. AI needs it too. But grids have not been modernised for decades. National Grid predicts a seven-fold increase will be required. Globally, the International Energy Agency expects investment by 2050 to total $11trn.
Of course, no pathway to an expected future is ever guaranteed. But one fact is undeniable. Finding new economically viable copper deposits is getting harder and harder. I believe a copper deficit is inevitable. That’s why I am positioning my portfolio for such an eventuality now. I believe its prudent for investors to consider Anglo American as part of a balanced portfolio. I certainly have.
