Anglo American PLC

Anglo American PLC (LON: AAL) is FTSE 100 Mining Company with operations in Australia, Southern Africa, South America, and North America, and is headquartered in London, United Kingdom. The Company’s primary activities include mining, exploring, and processing of minerals and metals at various geographies globally. The portfolio of minerals and metals include thermal coal, manganese, nickel, iron, diamonds, platinum, and copper. It seeks to secure, develop, and operate a portfolio of high quality and long-life resource assets that offers an attractive long-term value creation potential through sustainable cash flow and returns. It employs over 95,000 employees globally. Moreover, it is committed to being carbon neutral by 2040 across all operations.

Key Dates

• On 20 July 2021, AAL has scheduled its Q2 FY21 production guidance.
• On 29 July 2021, AAL is due to release its interim results for FY21.
• On 21 October 2021, Q3 FY21 production results are expected to be released.
  

Growth Prospects

• Strong Margin Across Business: During FY20, Anglo American reported 54% diamond mining EBITDA margin, 45% copper mining EBITDA margin, 51% PGMs (platinum group metals) EBITDA margin, and 46% of bulks EBITDA margin. Subsequently, the Company has been able to report better profitability margins than the industry median.
• Balanced Capital Allocation: In FY20, AAL reported US$2.7 billion of sustaining attributable free cash flow, which ensured 40% of underlying earnings as dividend payout and decent capital investments and shares buyback. It underpinned portfolio upgrade, pursuing future project options and generated additional shareholder return.
• Safe and Healthy Future: AAL is targeting carbon neutrality by 2040. In addition, the Group has shown a constant decline in TRCFR (Total Recordable Case Frequency Rate) since FY16, while the cases of operational health hazard have also been reduced. It shows that the Company is driving towards a safe and healthy future and catering to all its stakeholders well.

Risk Assessment

• Emerging Risks: The Covid-19 pandemic has impacted the global supply chain scenario and reduced market opportunities with the economic downturn. Moreover, if the Company fails to replace its Ore Reserve depletion, it can significantly impact its projects, exploration, and acquisitions. Adjacently, volatile product prices amid macro-economic instabilities can reduce profitability further.
  

• Principal Risks: Operational risks arise due to weather conditions, and failure in the delivery of equipment, affecting the Company’s operations. Similarly, financial risks such as lack of funding and liquidity could affect the operations of the Group. Moreover, the Group needs to conduct due diligence and detailed analysis before investing in any project since an enormous amount of capital is required to undertake any project. On the other hand, commodity prices and exchange rate fluctuations also affect the Company since metal prices are volatile.
  

Now we will analyse some key fundamental and shareholders statistics of Anglo American PLC.

Recent News and Regulatory Developments

Demerger: On 7 June 2021, Anglo American completed the demerger of its South Africa based thermal coal operations, Thungela Resources Limited.

Dividend Payment: On 7 May 2021, AAL paid the final dividend per share of 72 US cents. 

Production Update (for the first quarter ended 31 March 2021, as on 22 April 2021)

 (Source; Company Website) 

• During Q1 FY21, AAL reported that its production was stood at 95% of its normal capacity, despite the Covid-19 led operational challenges. Therefore, it was able to meet the strong customer demand.
• Plant maintenance downtime in Brazil (iron ore production) and temporary suspension in Australia (coal operations), were offset by the 9% year-on-year production increase in copper at both Los Bronces and Collahuasi operations.
• The holiday season boosted the diamond jewellery demand, and thus, the Company reported an encouraging rough dough sale.
• Demerger of South Africa thermal coal operations was subject to approval on 5 May 2021, which is now completed.

Financial Highlights (for the year ended 31 December 2020, as on 25 February 2021)

 (Source; Company Website)

• During FY20, AAL generated an underlying EBITDA of US$9.8 billion (FY19: US$10.0 billion), reflected robust demand delivery and business resilience.
• Profit attributable to equity shareholders declined 41% year-on-year in FY20 due to operational challenges presented by the Covid-19 pandemic.
• With investments in growth prospects, net debt at the end of FY20 was slightly higher at US$5.6 billion, represented 0.6x underlying EBITDA in terms of leverage.
• The Group was able to maintain its 40% dividend payout policy and recommended a final dividend of US$0.72 per share.

Financial Ratios (FY20)

 Share Price Performance Analysis

    (Analysis done by Kalkine Group)

On 16 June 2021, at 9:30 AM GMT, Anglo American PLC’s shares were trading at GBX 2,934.50, down by 2.15% against the previous day closing price. The stock made a 52-week High and Low of GBX 3,509.00 and GBX 1,727.60, respectively.

AAL’s stock price is sustaining above the 100-day EMA (GBX 2,667) and 200-day SMA (GBX 2,554), indicating an upward trend. Adjacently, the stock is nearly hovering around the lower standard deviation of the Bollinger Bands. Meanwhile, the momentum indicator 14-day RSI (36.24) is also trading around the oversold levels. Moreover, volumes show decreasing trend along with a decrease in prices, substantiating decreasing participation and trading in the stock.

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

 

Business Outlook Scenario

Anglo American PLC benefits from a range of high margin, high return, and fast payback options within the existing portfolio, which is complemented by industry-leading explorations projects and backed by the best technical experts in the industry. It has delivered cash returns of around US$6.1 billion in the form of dividends & buybacks since 2017. Further, it has been keeping net debt to EBITDA lower than 1.5x and providing EBITDA margin of 45% to 50% consistently over the years. It has been delivering resiliently in volatile times with decent financial and unchanged production guidance, which underpins that it is well-positioned for the future. It has many value-accretive projects in the pipeline with low risk and higher production. Therefore, it is well-positioned to take benefits from growth trends across the energy and industrial markets. Further, it is leveraging to optimise the operational structure to achieve sustainable growth in the future, and it aims to be carbon neutral by 2040 across all operations.

Production guidance is summarised as follows:

 (Source; Company Presentation)

Based on the robust cash returns to shareholders, resilient balance sheet, attractive production growth prospects, strong margins, with support from the valuation as done using the above method, we have given a “BUY” recommendation on Anglo American PLC at the current market price of GBX 2,934.50 (as on 16 June 2021 at 9:30 AM GMT) with lower double-digit upside potential based on 7.80x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

 

*All forecasted figures and Industry Information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV.

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