Anglo American PLC

Anglo American PLC (LSE: AAL) is a mining company which is listed under the FTSE 100 index with a portfolio of undeveloped resources, mining, and processing operations. Company's operations are segmented into Platinum Group Metals, Iron Ore, manganese, Copper, DeBeers, and Crop Nutrients. This Report covers the Key Recommendation Rationale, Conclusion, and Recommendation on the stock.

Key Recommendation Rationale – Sell at GBX 2,520.50

• Resistance near Current levels: AAL’s stock price has breached the Resistance (R1) and approached R2 levels which was stated in the previous report on 28 August 2024 therefore, there can be a possibility of a decline from resistance levels. Considering the market conditions and the price action, it is prudent to exit the stock.
• Copper Production Decline Due to Los Bronces Plant Closure: Anglo American’s copper production for Q3 FY24 fell by 13% YoY, primarily due to the planned closure of the smaller and more costly Los Bronces plant. This decision impacted overall production, particularly in Chile, where output decreased by 7%. While this move aligns with long-term cost-saving strategies, it temporarily reduces production capacity, which may limit the company’s ability to capitalize on copper price increases in the short term. This production loss, combined with lower grades and recoveries, suggests that the company's copper operations in Chile will face challenges before the next mine phase kicks in around 2027.
• Diamond Market Struggles Amid Ongoing Inventory Overhang: Despite efforts to adjust production levels, Anglo American’s De Beers diamond division has faced a significant 25% drop in production in Q3 FY24. This reduction is a direct response to challenging market conditions, where midstream inventory levels remain unusually high, and the recovery of demand is expected to be slow. While Anglo American has been cautious with production cuts, the persistent market softness could continue to pressure earnings from the diamond business. The prolonged demand slump points to a longer recovery period, potentially limiting revenue growth from this division in the near term.

       Valuation Methodology: Price/ Earnings Approach

Share Price Chart  

Conclusion

AAL is expected to trade at a premium considering the cutting of the interest rates, given outlook and guidance, etc. For conducting the valuation, the following peers have been considered: Rio Tinto PLC (LSE: RIO), Mondi PLC (LSE: MNDI) and others.

Given its current trading levels, the recent rally in the share price, relative valuation, and risks associated, it is prudent to book profit at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the closing market price of GBX 2,520.50, (as of 29 November 2024). 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 29 November 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.