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.