As Anglo American plc Suffers Dividend Loss, Are Antofagasta plc or Lonmin Plc A Better Buy?

One of the largest divisions of mining giant Anglo American (LSE: AAL) (NASDAQOTH: AAUKY.US) said this morning that it would not pay an interim dividend.

Kumba Iron Ore has axed its interim dividend after reporting 61% drop in earnings over the last six months. Iron ore prices have fallen from just over $100 to around $60 per tonne over this period. Anglo has a 69% stake in Kumba, meaning that it will be the biggest loser from Kumba’s decision not to pay a dividend.

Although Anglo is not solely dependent on iron ore, earnings from Kumba accounted for 39% of Anglo’s underlying operating profit last year. This looks likely to fall sharply in 2015. In a statement this morning, Anglo said that Kumba’s contribution to Anglo’s earnings was just $192m during the first half of 2015, down by 53% from $409m for the same period in 2014.

Analysts have cut profit forecasts for Anglo by 23% over the last three months, as coal, iron ore and platinum have fallen in value. Anglo’s shares are now trading at a 10-year low.

Will Anglo cut its dividend? The latest consensus forecasts suggest that Anglo will manage to maintain the payout at $0.85 this year, but if things get worse, a cut would be a near certainty, in my view.

A better alternative?

The problem for mining investors is that the commodity slump is affecting almost every commodity. Copper has fallen by 13% since the start of May to $5,500 per tonne, close to a six-year low.

Platinum has fallen by 20% so far in 2015 and is currently trading below $1,000 per ounce.

Miners are becoming even more unpopular than oil stocks. However, while a final sell-off is still possible, I think we could be getting close to the bottom. On this basis, two interesting alternatives to Anglo are copper miner Antofagasta (LSE: ANTO) and platinum firm Lonmin (LSE: LMI).


Things are pretty desperate at Lonmin. The firm’s shares have fallen by 57% this year and the current share price of 75p is 75% lower than in 1999. Lonmin stock has now fallen by 98% from the all-time high of 4,278p seen in 2007!

Lonmin is battling to find a way of turning around its unprofitable and high-cost platinum mines. The firm currently trades at just 0.23 times its book value, while the $800m or so of cash raised in a rights issue in 2013 has now been spent. Lonmin reported net debt of $282m in its latest accounts.

However, a return to profit is forecast in 2016. The firm could be a classic deep value investment, for brave investors.


Things are quite different at Chilean copper miner Antofagasta.

Although the company’s shares trade on a forecast P/E of 24, falling to 16 in 2016, this remains a profitable business with no net debt. Antofagasta’s dividend is expected to rise to $0.20 this year, giving a prospective yield of about 2%.

Historically, Antofagasta has been very profitable. The firm’s operating margin was 30% last year, albeit down from an all-time peak of 56% in 2010.

Antofagasta isn’t cheap, but its robust profit margins and strong balance sheet suggest to me that this could be a profitable investment if copper prices start to recover.

However, it's clear that the commodity market is a risky place at the moment. Prices have been high for a number of years, and could take several years to stabilise once more.

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Roland Head owns shares in Anglo American. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.