The Motley Fool

Anglo American shares: should I buy as copper prices rise?

Image source: Getty Images.

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.

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...

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.

Commodities boom

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.

Coal demerger

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.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

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.