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Rising Copper Prices, Portfolio Review Make Underperforming Anglo American Stock A Potential Bargain: Report (CORRECTED)

Author: Matt Whittaker | April 02, 2024 05:57pm

Editor’s note: This story has been updated to correct the spelling of the investment banking firm Jefferies.

Diversified miner Anglo American (OTC:NGLOY) could be a promising buy as copper prices rise and the company looks to transform itself, financial magazine Barron's said in an article.

The company has been underperforming competitors BHP Group Ltd (NYSE:BHP), Rio Tinto (NYSE:RIO) and Glencore ADR (OTC:GLNCY) because of operational problems, a disappointing production outlook and a slump in diamond and platinum-group markets, according to the article, which ran on Friday.

Anglo said it is reviewing its assets, with CEO Duncan Wanblad saying in a conference call that "nothing is off the table" in the asset review. 

Anglo's exposure to South Africa, via stakes in platinum and iron ore operations, helped depress its stock price because of the nation's problems with the economy, crime and power outages, Barron's said. Meanwhile, analysts aren't thrilled about the company's expensive fertilizer project in England.

The company’s platinum and iron ore stakes could be spun off while it would be bullish for the stock if Anglo can bring in a partner on the fertilizer project. The article also speculated that the entire company could be sold to a competitor.

"Because of its recent troubles, Anglo American's stock looks inexpensive," the article said. "Ultimately, Anglo American offers shareholders two ways to win. It either cleans up its business this year, or it could find itself in the hands of a larger mining company that will develop its attractive resource base."

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The Barron’s article cited Jefferies mining analyst Christopher LaFemina as saying that if Anglo's situation doesn't improve, the company could attract a buyer or activist investor. He also said recoveries in the diamond and platinum-group metals markets could help the company's shares.

Meanwhile, Anglo's best business is copper, but LaFemina said the company isn't getting credit for that metal because of the other issues.

Morgan Stanley analyst Alain Gabriel recently upgraded Anglo to Overweight, noting the portfolio review, potential operational improvements and the company's exposure to copper, which has a strong long-term outlook because of limited new supply and rising demand from the green energy industry. 

Others are bullish on copper too.

An RBC Capital Markets analyst note on Monday said copper fundamentals are supportive as inventories in Shanghai posted their first weekly decline since December, an indicator that destocking may have begun. That would create more supply tightness in the copper market, as Chinese smelters said they would cut production amid falling concentrate supply.

Meanwhile, demand from China, the world's largest copper consumer, could see improvement.

"We are also seeing constructive commentary surrounding China stimulus and property market support with China’s central bank stating on Thursday that there is significant monetary policy flexibility to implement additional cuts to the reserve requirement ratio for banks while state media cited cabinet meetings on Friday which were focused on further optimizing property policy to support the struggling property sector," the RBC note said.

An ING commodities strategist also sees potential in improving Chinese demand from rising housing completions, as well as support for copper from a weaker U.S. dollar resulting from potential rate cuts from the Federal Reserve.

ING, along with other experts, also saw support for copper from the energy transition away from fossil fuels. 

"The demand side is expected to slowly improve this year, especially from the green energy sector," the ING note said. "Copper is used in everything from electric vehicles to wind turbines and power grids."

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Benzinga Mining is the bridge between mining companies and retail investors. Reach out to licensing@benzinga.com to get started!

Image was created using artificial intelligence MidJourney



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