Bullish break

Finweek English Edition - - INVESTMENT -

Abullish break from a heavy­weight share l ike An­glo Amer­i­can, which makes up roughly 10% of the All Share In­dex ( JSE), is well worth in­ves­ti­gat­ing. An­glo, which has con­trol­ling stakes in An­glo Plat­inum and Kumba Iron Ore – and a 10% stake in Exxaro – has aban­doned its two-year bear trend. Out­side of the JSE, An­glo owns 45% of De Beers. In 2007 it spun off Mondi and di­vested com­pletely from An­gloGold Ashanti, Highveld Steel and Vana­dium, Hu­lamin and Ton­gaat-Hulett – a down­siz­ing that has proven to be ben­e­fi­cial in con­cen­trat­ing pre­dom­i­nantly in its core com­modi­ties of cop­per, di­a­monds, iron ore, man­ganese, coal, nickel and plat­inum. An­glo re­mains one of the top min­ing and nat­u­ral re­sources com­pa­nies in the world, with a well­diver­si­fied port­fo­lio of as­sets and ge­o­graph­i­cally di­verse de­vel­op­ments in Africa, Europe, Aus­tralia as well as North and South Amer­ica.

Although it con­tin­ues to be judged on the un­rest at its plat­inum coun­ter­part An­glo Amer­i­can Plat­inum (Am­plats), which griped about los­ing $1bn over the nine-week-long pay strike, in­vestors are now look­ing at the big­ger pic­ture. They seem to have wel­comed An­glo’s plot to off load some of its prob­lem­atic pits, namely the Rusten­burg and Union mines, so that Am­plats can catch up with its peers in terms of ef­fi­ciency. Di­vest­ing from its ail­ing as­sets will now al­low Mark Cu­ti­fani to sharpen Am­plats’s op­er­a­tional fo­cus on more prof­itable ar­eas. In so do­ing, An­glo will un­lock cap­i­tal stuck in those mines, thereby pro­vid­ing a plat­form for re­struc­tur­ing other pits in South Africa to help boost in­vest­ment in more prof­itable mines.

In ad­di­tion, An­glo is a good rand hedge stock – rand weak­ness will al­ways trans­late into higher rand prices for re­sources quoted in dol­lars, which also means that An­glo’s earn­ings are highly sen­si­tive to move­ments in the lo­cal cur­rency. How­ever, An­glo be­lieves it of­fers the most at­trac­tive risk-re­turn pro­files over the long term. The only dis­ad­van­tage of course would be the un­cer­tainty sur­round­ing the SA min­ing in­dus­try; and the in­vest­ment re­turns in the coun­try are com­ing un­der in­creased pres­sure due to a heavy tax regime, BEE de­mands and stiff leg­is­la­tion. But given the re­cent break­out, I would strongly rec­om­mend a long po­si­tion based on cur­rent sen­ti­ment. POS­SI­BLE OUT­COME: An­glo has breached the re­sis­tance trend­line of its two-year bear trend. A pos­i­tive break­out above 29 145c/share presents a good buy­ing op­por­tu­nity, with po­ten­tial gains back to its 2001 prior high at 40 135c/share in the medium term (six to 12 months). AL­TER­NA­TIVE SCE­NARIO: A re­ver­sal below 23 075c/share could see An­glo re­trace to the 21 010c/share sup­port level. A huge base would still form if down­side per­sisted to the 18 515c/ share prior low. But breach­ing that level would mark a long-term change in in­vestor con­fi­dence.

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