The Anglo American (LSE: AAL) share price has been through something of a boom and bust period in the past few years.
It’s now half where it was at the peaks of 2022, but we have seen some progress in 2024.
Upbeat first-half results on Thursday (25 July) didn’t do much, with the price down 1% in morning trading. Still, the FTSE 100 itself has dropped the same, so it’s all square.
Cyclical boost
This is a notoriously cyclical sector, and demand for raw materials has been hit by inflation and interest rates. But I have my eye on the big FTSE 100 mining stocks, with a feeling that the upwards part of the next cycle might be on its way.
Anglo CEO Duncan Wanblad spoke of “a strong operational performance that delivered steady volumes and a 4% improvement in unit costs, while still facing weak cyclical markets.“
The firm saw revenue drop by 8% in the period, which I’m happy to take in the current economy. The fact that it translated to just a 3% dip in underlying EBITDA shows margins are holding. In fact, Anglo’s EBITDA margin picked up from 31% a year ago, to 33%.
To me that’s testament to keen cash control, which can be crucial in a cyclical business. And we saw free cash flow of $506m, compared to a $466m outflow a year ago.
Transformation
A tentative takeover approach by BHP pushed the Anglo American share price up in April and May. It came to nought, even though BHP upped its proposals a couple of times. But big acquisition attempts add to my thought that a sector might be undervalued.
It would have meant demerging Anglo’s Platinum Limited and Kumba Iron Ore Limited businesses. And that can show where there might be some weakness, and where a firm’s core strength lies.
The company’s still going ahead with demergers. And the CEO told us this time that plans to divest its steelmaking coal business are “well under way with continued strong interest from a large number of potential new owners.”
He says it’s part of plans for “focusing on our world-class asset base in copper, premium iron ore and crop nutrients.“
What does it mean?
All this divesting and focusing can enhance a company’s efficiency. But it can throw a spanner in the works for investors thinking about putting down some of their hard-earned money to buy some shares.
On the whole, I think these moves are probably good. Especially the focus on copper, which must be one of the metals with the surest of future demands. All those electric vehicles and renewable energy infrastructure will need lots of the stuff.
Then again, a tight focus can open up a miner more to volatility in its chosen materials.
On balance, I’m fairly bullish about the prospects for Anglo American. But I think other mining stocks, with less of the restructuring risk, might be better value now. I’ll hold off and keep watching.
