Anglo American (LSE:AAL) is a FTSE 100 company and a big producer of copper, two things I see as potentially making it a buy for me. So is this stock a great way for me to capitalise on copper’s price increase in the years to come?
So far this year, the price of copper has risen by 30% and it’s now at a 10-year high. This is being fuelled by shortages due to growing demand and under-investment in developing the supply.
That isn’t all, there are expectations that demand for the metal is set to continue rising in the short term as economies open up post-pandemic. With copper being a key component in electric motors and batteries, there’s potential for this to be a long-term trend as the adoption of electric cars expands. This has some analysts predicting the price could double in the next three years.
All of these factors mean that I’m looking to potentially piggyback on the coat-tails of copper’s rise over the coming years. And I think Anglo American shares could be a strategic long-term way to achieve this.
Anglo American’s copper position
The good news here is that Anglo American just revealed in its Q1 financials that its copper production jumped 9% year-on-year. The company has also been investing in its Quellaveco mine in Peru. This is a large-scale copper mining project that’s expected to begin production next year.
It’s not all positive for the company’s mines, however, with a severe drought in Chile impacting production at its Los Bronces site. This could be a longer-term challenge for Anglo American, not least because it has resulted in clashes between the local community and the company over the use of water.
Wider than copper, Anglo American is also well-positioned in platinum, iron ore, and diamonds, among other commodities.
I think this is positive for potential holders of Anglo American shares. That’s because the prices of such commodities are broadly rising. From the commodities noted, platinum also experiencing a huge increase in price in recent years. That said, on the diamond front, the company saw production fall by 7% year-on-year.
Yet with commodities, there are risks to bear in mind linked to their cyclicality. This means prices can rise higher for periods of time, over a period of years. But this can be followed by a subsequent drop with prices remaining low for years at a time. It makes ownership of shares in related companies potentially riskier than in some other industries.
On the plus side, today the company announced at a shareholder meeting that its coal demerger had been passed. This should allow it to move away from this heavily polluting commodity and focus more on copper demand. The development could see Anglo American shares rise more closely in relation to potential copper price increases. However, this also means that the business loses some of its diversity.
And a cause of uncertainty is that CEO Mark Cutifani will step down once the Quellaveco mine is completed.
So to repeat my original question: should I buy? At present, I’ll wait to see how the market reacts to the demerger news over the coming weeks and look to buy Anglo American shares should the price dip from its current high mark.
Ben Hargreaves 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.