Anglo America

Company Overview

  • Anglo American (AGL) is a leading global mining company, which engages in the exploration and mining of precious base metals and ferrous metals.
  • It is headquartered in the United Kingdom, London and employs more than 95 000 employees in 15 countries.
  • Its projects and operations are in Africa, Asia, Australia, Europe, North America and South America.
  • The company operates through the following segments: De Beers, Copper, Platinum Group Metals, Iron Ore, Coal, Nickel and Manganese.
  • Anglo American has a primary listing on the London Stock Exchange and a secondary listing on the Johannesburg Stock Exchange.

Key Investment Drivers

  • Commodity Diversification: Anglo American’s commodity mix is the most diversified amongst its peers. In its 2020 financial year, the contributions to group EBITDA were 46% Iron Ore, 26% PGMs, 19% Copper, 5% Nickel and Manganese and 4% Diamonds. The remaining 0.4% was split between Coal and Crop Nutrients.
  • Geographic Diversification: The Company is geographically diverse with operations in Africa, Europe, South and North America, Australia and Asia. It also has an extensive customer base, selling its products to 13 different countries.
  • Revenue Exposure to Electric Vehicle (EV) Metals: Anglo American is a significant producer of copper and nickel, which are some of the key metals required for EV battery production. Demand from the EV industry for key metals is on a swift upward trajectory due to higher environmental awareness. This provides Anglo American with a potential catalyst for medium to long-term growth.
  • PGM Demand in Hydrogen Fuel Cell Technology: PGM metals typically play a significant part in the catalysts used in car manufacturing and in fuel cells for the electrolysis process that produces hydrogen. As one of the largest global producers of PGM metals, this implies that Anglo American is well-positioned to benefit in the future of a low-carbon economy.
  • Robust Spot FCF: The company has attractive cash return prospects which are fundamentally supported and limit downside risks. This is attributable to the compelling near-term prospects for PGMs (through deficits in the palladium and rhodium markets), an accelerating diamond recovery, and its premium-quality iron ore portfolio which all boost confidence in the earnings outlook and increase confidence in 2021 segmental profits.
  • Minimised Risks through Commodity Diversification: Anglo American’s diversified portfolio allows it a crucial hedge against the volatility of commodity markets. At spot prices, it has a significant upside risk to 2021 EBITDA across a broader set of commodities versus its diversified peers that are more dependent on a single commodity.
  • Balance Sheet Strength: The company has deleveraged its balance sheet significantly from peak levels in FY15 when its Net Debt:EBITDA multiple was 2.9x. It has brought the ratio down to 0.6x currently. This has enabled Anglo American to maintain its policy of paying out 40% of underlying earnings. We expect the pace of de-leveraging to accelerate while maintaining balanced shareholder returns in the current environment.
  • ESG Targets: The company's ESG targets are more ambitious than its industry peers', yet with a credible path to attaining its ESG objectives.

Key Risks

  • A downturn in commodity prices driven by subdued demand.
  • Uncertainties around the COVID-19 pandemic and its impact on the commodities markets.
  • Anglo American’s operational performance and financial discipline not being sustained.
  • Deterioration in the regulatory and investment environment in South Africa.
  • Poor project execution on current expansion projects in the pipeline.
  • Macroeconomic factors such as China’s steel consumption are a critical driver for the Iron Ore division which is the largest part of the business.

About the Author

Lwando Ngwane
Equity Analyst, Sasfin Wealth

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