Metals shift lifts slimmer Anglo
ANGLO American is a case study of what happens to a company when there has been too much borrowing and poor capital allocation.
The company has shrunk from 68 assets four years ago to 42. By the time the restructuring programme that was announced in December last year is completed, the one-time giant of the commodity world should be left with only 16 operations.
However, since the programme began, there has been a marked shift in the state of the commodity world. Prices have either steadied or, in the case of iron ore, rallied significantly.
Last December, Anglo was trading at R72.76 a share; over the course of this year it has more than trebled in value. Another of the world’s blue-chip miners, larger rival BHP Billiton, has gained 48% and Glencore is up 148%.
Gold miners have seen their fair share of fireworks this year on the back of a higher gold price and a weakening of the rand.
But, while mining houses seem on the up, leading to questions about just how deep Anglo’s restructuring will be, analysts say miners are still far from enjoying the real benefits of a bull market.
“I don’t think it’s a return to a bull market. The fundamentals aren’t strong enough, there is too much supply, real growth isn’t that strong and there’s a lot of disruptions. England and people like [US president-elect Donald] Trump are having a negative impact on the order of things,” said Peter Major, a mining analyst at Cadiz Corporate Solutions.
Geopolitics over the next six to 12 months is expected to have a bearing on most commodities. An Italian referendum could cause concern about the stability of Europe. The continent’s biggest economies, Germany and France, also head to the polls.
From across the Atlantic comes a more immediate impact on the cost of raw materials: the US Federal Reserve rate decision next month.
Leon Esterhuizen, a resources analyst at Nedbank, said the outcome of the elections in three European countries that together make up 60% of the eurozone pointed to future volatility in gold.
Esterhuizen said the base case was that there is not a great outlook for gold over the next 12 months.
“We think there is an opportunity to buy gold now and into the beginning of next year but I’m not saying buy and hold it for the next two years. I don’t think that’s a good idea,” he said.
As for bulk and base commodities, which are soaring on the back of Trump’s infrastructure pledge, Major was a bit more wary, arguing that China would still be the driver of what happens to prices.
“Miners will make enough money to make a profit, but I don’t see them growing next year. I don’t think they will do more than 10% or fall more than 10%, the big companies. I’d put my money on flat for next year, not growth.”
South32 CEO Graham Kerr said this week at the company’s AGM that he expected coal prices (hard coking coal and thermal coal) to last a little bit longer, “but we certainly don’t think it’s going to stay where it is forever. We expect weakness in the next calendar year.”
Exxaro earlier this week said it expected improvements in its coal business due to stabilised trading conditions locally and higher international coal prices.
The company anticipates that export sales volumes will rise 31% and domestic thermal coal sales, excluding Eskom, will increase by 73%.
As for the platinum price, it remained flat, along with platinum mining companies this year. The benefits of a turnaround were little touched by the metal and its producers due to the above-ground stock that was still flooding the market, causing price pressure.
Esterhuizen said platinum group metals had already hit bottom and, with restructuring in most companies and costcutting strategies implemented, mining houses were still in “survival mode”. He added that because the platinum industry had been struggling to turn around for about 10 years now, the positive side would show.
“Demand is constantly growing at about 2% per annum. Ultimately, even if you don’t produce less, the demand pickup is going to come and the price will pick up.
“We think this is going to turn in the next 18 months to two years,” he said.
I’d put my money on flat for next year, not growth