RESTRUCTURING PROGRESS
Since announcing its restructuring in June last year following the failed takeover bid by BHP Group, Anglo has sold its coal and nickel businesses for ~US$4.8 billion and US$0.5 billion respectively. The group has also made substantial progress on the demerger of its stake in Anglo American Platinum (Amplats), valued at around US$5.5 billion at the time of writing, with completion expected in June 2025.
Anglo American’s market capitalisation is currently in the region of US$38 billion. The most pressing remaining challenge for the group is the sale of its struggling diamond business, De Beers, which is likely to extend into the next financial year. De Beers has a book value of US$4.1 billion.
The result of all this restructuring is that by 2027, the more streamlined group will derive around 60% of its profits from copper – in our view, the commodity with the most promising long-term fundamentals. This figure may in fact be even higher, given the challenging outlook for iron ore prices – see below.
COPPER AND IRON ORE
The outlook for copper prices remains robust, with steadily growing demand from the energy transition (everything electric requires more copper) and declining grades at many of the world’s biggest mines leading to uninspiring supply prospects. The mining industry is responding by sanctioning new projects, but this will take time, and many unapproved projects would need significantly higher prices to be economically viable.
Anglo has a world-class copper portfolio. Its South American mines rank among the longest-lived and lowest-cost in the industry and have embedded low-capital growth optionality. This is what BHP envies and was the main motivation behind last year’s bid for its smaller competitor.
The prospects for iron ore prices are more uncertain, as China’s steel demand has likely peaked, and scrap steel is expected to play a larger role in supply – especially since China’s scrap usage remains low compared to more mature Western economies. With China consuming more than 60% of global iron ore, the demand is likely to remain flat at best, with rising demand from other emerging markets probably insufficient to offset the decline from China.
At the same time, about 10% new low-cost supply is expected to enter the market over the next five years, notably from the large Simandou deposit in Guinea. While current prices of ~US$100 per tonne are near cost support levels, this low-cost supply growth will likely result in some higher-cost producers being pushed out of the market and a lower cost support level.
Anglo’s iron ore mines – Kumba in South Africa and Minas Rio in Brazil – are relatively higher-cost, sitting in the third quartile of the global cost curve, making them more vulnerable to price declines compared to low-cost producers BHP and Rio Tinto. However, Anglo’s ore is of higher quality, with greater lumpy content and grades, and the price premium for this quality is expected to increase as carbon prices rise (higher-quality ore enables more efficient steel production with lower emissions), which should help Anglo improve its position on the cost curve.
WHAT ABOUT PLATINUM?
Historically, when commodities have been classified as non-core, it has often marked the bottom of their cycle. As Anglo American shareholders, we’re at least not being forced to sell this good asset at the bottom of the cycle – we’ll be receiving Amplats shares that we can sell at a higher price. Amplats holds some of the best platinum group metal (PGM) assets in the world, most notably its low-cost, open-pit Mogalakwena mine, which has a remaining lifespan of 100 years.
Long-term demand for PGMs is uncertain due to the rise of electric vehicles – PGMs are primarily used as catalysts in internal combustion engine vehicles. However, industrial demand for platinum, along with minor metals like iridium and ruthenium, remains solid and is growing. This should help offset the decline in palladium and rhodium demand, which is more exposed to the automotive sector.
Primary mine supply is expected to fall significantly over the next decade as many deep-level mines in South Africa near the end of their life. We view current price levels as unsustainable for the industry and anticipate a recovery in the coming years. We are therefore likely to retain our stake in Amplats following the unbundling.
THE TAKEOVER PREMIUM
While we won’t speculate on whether BHP may make another bid, we believe the newly streamlined Anglo American will be a far more attractive takeover target for BHP and other large mining peers seeking more copper. As a result, we believe the Anglo share price will be well supported by an embedded takeover premium – a built-in price increase reflecting the market’s anticipation of such a potential takeover.
