Anglo American (LON:AAL) Nears the Brink

February 12th, 2016 by

Shares of Anglo American PLC (LON:AAL) rallied more than 15% on Friday morning, joining several of its peers in a rising tide for the mining industry. While this is an encouraging sign, it brings Anglo American’s stock price back to where it began the week.

Source: mozambiqueminingjournal.com

Source: mozambiqueminingjournal.com

Over the last month, share prices have been halved; if you go back one year, the damage is even worse: almost 75% of its value has been erased. During 2015, AAL was the worst-performing stock on London’s benchmark FTSE100 index.

While a stock price above $360 sounds rather healthy, this pales in comparison to when the company traded above $3,000 per share less than 5 years ago.

What went so terribly wrong?

Bleeding Money

Since CEO Mark Cutifani took over Anglo American, the company has been losing $350 million per month over the last 33 months. Cutifani has been blunt with investors: “If we don’t adapt, we perish.”

AAL one-year price chart. Source: Google Finance

AAL one-year price chart. Source: Google Finance

The shift toward becoming more adaptable to a rapidly changing mining industry is forcing Anglo American to make some difficult changes. The company has indicated it will shut down more than half of its mining projects in an attempt to reduce its operating costs.

This is no small measure: Anglo American is a truly global company, running mines and marketing the wide variety of minerals it extracts in Africa, Asia, Australia, Europe, North America, and South America. Essentially, the company is active on every inhabited continent of the world.

Fledgling Platinum Business

Anglo American’s main focus is on copper, base metals, and coal. However, it also mines precious metals and diamonds through a partnership with De Beers. The company hopes to use technological improvements to overhaul its copper business, with more details to be released later in the year.

platinum_bar2When it comes to precious metals, Anglo American is actually the world’s largest platinum producer. Based in Johannesburg, South Africa, the firm takes advantage of the vast supplies of the Platinum Group Metals (palladium included) deposited in South Africa.

However, between persistent labor disputes and slumping precious metal prices, the company has been forced to write down 14 billion South African rand ($876 million) on its platinum operations. Profits from Anglo American’s platinum division have fallen by a staggering 86%.

Uncertain Future

Anglo American was joined in its rally Friday by fellow major miners Glencore (LON:GLEN), BHP Billiton (NYSE, ASX:BHP; LON:BLT), Rio Tinto (NYSE, LON, ASX:RIO) and Vedanta Resources (LON:VED). This shows that improved sentiment was spread industry-wide, fueled mainly by improved bullion prices.

Nonetheless, as the single worst performer on the FTSE100 last year, Anglo American remains in jeopardy of being booted—delisted—from the index this March.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.