The Motley Fool

Should I buy Anglo American shares?

Image source: Getty Images.

I’ve been busy this week. I have already dealt with Open Orphan, one of my portfolio holdings, and its plans for a demerger. Today I am dealing with another. Anglo American (LSE:AAL) wants shareholder approval to spin-off its thermal coal operations in South Africa into a new holding company, Thungela Resources. If shareholders, like me, back the move, they will get one Thungela share for every 10 Anglo shares they own. At least 75% of shareholders need to approve the demerger at the annual general meeting on 5 May 2021. 

I suspect the motion will be passed. The 3% rise in the Anglo American share price after the announcement suggests investors in Anglo approve of the move.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Shareholder approval

I will not be voting for the demerger, even though I suspect I will be on the losing side. I don’t want to own companies that are not moving towards a fossil fuel-free future. But, if the demerger is approved, I will end up holding shares in Thungela, a pure-play coal miner. What’s going to happen to the price of those shares when they start trading? I can’t see any mention of any lock-up period or restrictions, so I guess many investors are going to run for the exit immediately.

If I rush for the exit, I am fairly confident I will be selling Thungela at a loss. I could wait and hope that a strategic buyer comes in to snap up Thungela at a heavily discounted price. But I don’t really want to do that. Now, I could be wrong about Thungela’s prospects. Other investors might want direct exposure to thermal coal as Anglo has suggested. But looking at the operating loss the thermal coal business made in 2020 and the climate change emergency the world is facing, I am not confident. Anglo could have made plans to dispose of Thungela by a split-off or a carve-out if they are as confident about investor interest in an independent coal company as they say.

Anglo American share price

As for the impact on the Anglo share price, I think an approved demerger will be positive. Being out of thermal coal will allow previously reluctant investors to buy in. Anglo will continue to mine copper, platinum group metals, nickel, manganese, iron, and diamonds. Some of these metals are critical to the green economy. All should see increased demand as the world gets back to normal after the pandemic.

Mining is a cyclical industry. The outlook for metal prices looks positive now, but things will turn eventually. I am prepared to hold my Anglo shares through the cycles. According to the World Steel Association, the company will still produce coking coal for steel making, which produced 8% of global CO2 emissions. Also, there is the Woodsmith mine, which Anglo acquired in the Sirius Minerals takeover. It has the potential to produce quality fertiliser to help the world grow food. But, production won’t start until at least 2024. Until production starts, the project will continue to gobble up capital.

Would I buy Anglo Shares?

I won’t sell my Anglo shares, but I also won’t buy more right now. If the demerger is approved then buying now would give me more Thungela shares to dispose of. I will consider buying shares in a thermal coal-free Anglo.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

James J. McCombie owns shares of Anglo American and Open Orphan plc. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.