Anglo American PLC (LON: AAL) – Competitive, World-Class Asset Base is Supported by Leading Capabilities to Drive Lucrative Sustainable Returns.

Anglo American PLC is an International Mining Group, which is having 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 Company’s portfolio of minerals and metals include thermal coal, manganese, nickel, iron, diamonds, platinum, and copper. The Company 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. The Group focuses on innovative practices and technologies to offer a high-quality range of products. The Company also undertakes exploration projects, which is divided into brownfield exploration to identify resources close to existing operations and greenfield exploration to find entirely new resources. It employs around 90,000 employees globally.

The Company is expected to release its second-quarter production report for FY20 on 16^th July 2020.

 
(Source: Presentation, Company Website)

Key Fundamental Statistics



Segment Analysis

The Company operates with seven segments, namely De Beers, Platinum Group Metals, Copper, Coal, Iron Ore, Nickel and Manganese, and Corporate and Other. Even by geography, the Company has a quite diverse portfolio of assets, which can be seen in the picture below:

  
(Source: Presentation, Company Website)

Synopsis of Recent Developments

10^th June 2020: The Company announced the stoppage of the ACP (Anglo Converter Plant) Phase B due to water leak; however, it would not affect the production guidance for the full year.

6^th May 2020: Post spending seven-year in the Board of the Anglo American PLC, Dr Mphu Ramatlapeng has retired from her position as an independent non-executive director.

5^th May 2020, The Group announced that it had completed the repair of the ACP (Anglo Converter Plant) Phase B unit and thus, it is ready to resume refined PGM (Platinum Group Metals) production.

Non-Financial Key Performing Indicators in FY19

The Company has consistently kept the safety & health measures in mind, which has resulted in a consistent decline in - Number of work-related fatal injuries, Total recordable case frequency rate (TRCFR), New cases of occupational disease (NCOD). Moreover, the Company has put remarkable efforts to safeguard the environment by saving Energy Consumption, Greenhouse Emission, and Total Water Withdrawals.


(Source: Annual Report, Company Website)

Top Shareholders Statistics 
 
 

Production Report for Q1 FY20 – Reflecting Strong Iron Ore Production at Minas-Rio


(Source: Company Website)

On 23^rd April 2020, the Group provided a production report for the first quarter ended March 31, 2020 and reported strong operational performance in Brazil and Chile. In Brazil, the Minas-Rio continued the robust operational performance in the first quarter of 2020, with premium-grade iron ore production of 6.4 million tonnes, reflecting P101 productivity initiatives. The attributable production surged by 16 per cent to 66,500 tonnes at Collahuasi in Chile, due to higher copper recovery, higher plant throughput, and planned higher grades. Rough diamond production for the first quarter of 2020 was in line with the prior year at 7.8 million carats, with partial impact from COVID-19 measures introduced in producer countries. During the start of a COVID-19 lockdown, the Company had a limited impact of 2 per cent on Q1 production in the South Africa region. However, refined PGMs (Platinum Group Metals) production was significantly reduced by the announced convertor plant outage. The Group has accomplished the cash acquisition of Sirius Minerals PLC and UK Woodsmith polyhalite project for a total value of USD 0.5 billion, with USD 0.2 billion net debt plus fair value adjustments.

Financial Highlights (for the year ended 31^st December 2019) – Reflecting Robust Revenue & Underlying EBITDA Growth


(Source: Annual Report, Company Website)
 

On 9th March 2020, the Company published the Annual Report for FY2019. In the fiscal year 2019, revenue during the period rose by 8 per cent over the year to USD 29,870 million, up from USD 27,610 million in FY2018, reflecting benefits from diversification. Underlying earnings per share rose to USD 2.75 as compared to USD 2.55 in the same period last year, helping the Company to announce the dividend of USD 1.09 per share. Attributable return on capital employed stood at 19 per cent in the fiscal year 2019. The Group reported USD 2.32 billion of attributable free cash flow during the FY19.

Financial Ratios – Decent Performance with respect to Profitability, Liquidity and Leverage Ratios against the Industry Median

 

The reported EBITDA margin in FY19 was 31.40 per cent against the industry median of 17 per cent, reflecting significant operational improvement. Net margin stood at 15.30 per cent for the fiscal year 2019, higher than the industry median of 3.6 per cent. AAL has delivered a substantial return for the shareholders’ as Return on equity of 14.70 per cent was significantly higher as compared to the industry median. On the liquidity front, Anglo American Plc’s current ratio stood at 1.92x, reflecting sufficient current assets to cover short term obligations. On the leverage front, the debt-equity ratio of the Anglo American Plc remained flat at 0.43x as compared to the industry median data.

Share Price Performance


Daily Chart as on 24th June 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 24th June 2020, at the time of writing (before the market close, at 11:34 AM GMT+1), Anglo American Plc’s shares were trading at GBX 1,840.00 and were down by 2.42 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 2,294.00/GBX 1,018.20. The outstanding market capitalisation was around £25.59 billion, with a dividend yield of 4.73%.

Bullish Technical Indicators

From the technical standpoint, the shares were trading well above the short-term support level of 20-day and 50-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

The Company’s stock has given 33.27 per cent of a positive return in the last 3 months and 17.21 per cent return in the last one month.

Valuation Methodology

EV/EBITDA Approach (NTM)



To compare Anglo American Plc with the peers, EV/EBITDA multiple has been used. The peers are Antofagasta Plc (NTM EV/EBITDA was 7.25x), Ferrexpo Plc (NTM EV/EBITDA was 4.59x), Vale SA (NTM EV/EBITDA was 4.06x), Kaz Minerals Plc (NTM EV/EBITDA was 5.64x), BHP Group Plc (NTM EV/EBITDA was 6.66x) and Glencore Plc (NTM EV/EBITDA was 6.24x). The Average of EV/EBITDA (NTM) of the Company’s peers was 5.74x (approx.).

Valuation Metrics

 (Source: London Stock Exchange)

As on 29^th May 2020, the Price to Earnings, EV/EBITDA and Price to Book multiples of the Anglo American Plc were 8.4x, 3.6x and 1.2x, respectively, and the same multiples were lower as compared with the Mining industry. It is reflecting shares are undervalued as compared to the peers.

Anglo American Plc Vs FTSE 100 Index (3 Months)


 (Source: Refinitiv, Thomson Reuters)

In the last three months, Anglo American Plc share price has delivered 39.64 per cent return as compared to 13.46 per cent return of FTSE-100 index, which shows that the stock has outperformed the index during the last three months.

Industry Outlook Dynamics

There are several global trends which influence the mining industry, such as transition towards lower emission transport, changing demographics, regulatory expectations, changing physical environment of mining, among others. The market size for the Global Strategic Mineral Materials market is projected to grow at a compounded annual growth rate of 6.4 per cent from 2018 to 2026, according to the report from the  Research And Markets. As per the Acumen Research and Consulting, the market size for the copper industry will be around USD 222 billion by 2026. The demand for copper is consistently growing, primarily driven by urbanization (includes demand for power generation and transmission), economic development (includes development related to infrastructure, transport and construction), and the newly rising demand for electric vehicles and renewable energy.

Growth Prospects and Risk Assessment

The Group has many value-accretive projects in the pipeline with low risk and higher production. The Company is well-positioned to take benefits from growth trends across the energy and industrial markets. The Company using its cost synergies had optimized its operational structure to achieve sustainable growth in the future. The Company operates in multiple geographies due to which its profits can be impacted negatively due to the foreign exchange rate fluctuations. Many environmental factors, such as rainfall, drought, among others, also determine the level of production achieved by the Company. Technological developments have led to the artificial production of higher quality gem synthetics, which can have a potential loss of rough diamond sales, resulting in a negative impact on revenue. Moreover, the Coronavirus outbreak could affect the performance of the Company although the Company continued the momentum of operational performance, while production remained resilient during the lockdown scenario. Therefore, the Group is capable enough to tackle these uncertainties with the sustainable growth model.

 
 
(Source: Annual Report, Company Website)
 
The image given below reflects the impact of known disruptions from the COVID-19 pandemic on the earlier issued 2020 production guidance.

(Source: Company Website)

Business Outlook Scenario

The Company is well-positioned to take benefits from growth trends across the energy and industrial markets. Moreover, the completion of Sirius Minerals acquisition and UK Woodsmith polyhalite project should generate synergy in future. AAL has taken several effective measures to help safeguard against the spread of COVID-19 pandemic. AAL is cautious about the outlook for the key commodities in the short term but expects positive demand in the long-term. Most of the Company’s sites across the world are operating with appropriate safety measures. The Company 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. The Group is planning to increase the production from old and new operations in the coming future. Moreover, the Group appears to be resilient with operating and capital expenditure cut in 2020. The Group is expecting USD 0.5 billion in cost savings along with approximately USD 1.5 billion of earning benefits from the weaker currency of producers and falling oil prices.

Over the course of 4 years (FY15 - FY19), the Company’s revenue surged from USD 20,455 million in FY15 to USD 29,870 million in FY2019. Compounded annual growth rate (CAGR) stood at 9.93 per cent.

Based on the decent growth prospects, and supported by valuation using the above method, we have given a “Buy” recommendation at the current market price of GBX 1,840.00 (as on 24th June 2020 before the market close at 11.34 AM GMT+1) with lower double-digit upside potential based on 5.74x NTM EV/EBITDA (approx.) on FY20E EBITDA (approx.).
 
*All forecasted data and peer information have taken from Refinitiv (Thomson Reuters).

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