The world’s most successful investor, Warren Buffett, steers away from resources companies. His view is the greatest attraction of an equity investment is the ability to leverage human ingenuity. Even so, Buffett would have been sorely tempted by Anglo American Plc, the South African focused mining major whose share price hit the rocks in January. Buffett is a devotee of the late Benjamin Graham, the father of modern investment theory who warned at length about the vagaries of Mr Market – and how to take advantage of his mood swings. In January, Mr Market went into deep depression on Anglo. With hindsight, that was the time when those looking for short-term returns should have loaded up. News that the asset disposal programme is progressing well, with buyers of the Brazilian phosphate business short-listed, is sure to please CEO Mark Cutifani’s new-found fan club. – Alec Hogg
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(Bloomberg) —London’s best blue-chip stock is one most analysts spent this year telling investors to dump.
Anglo American Plc has more than doubled in value in 2016, outpacing all other FTSE-100 companies. Since touching a record low on Jan. 26, over half the recommendations on the diamond and iron-ore miner have been to sell.
Of the 30 compiled by Bloomberg, only two are to buy, while the business has the lowest consensus investment rating of any on the benchmark index.
Anglo’s not alone. European mining shares are up 25 percent, beating all other industries in the Stoxx Europe 600 Index, while analysts rate them the worst.
“This rally wrong footed almost everybody,” said Jeremy Wrathall, head of global natural resources in London at Investec Plc. The bank maintains a sell rating on Anglo, after cutting its recommendation in January, as well as Glencore Plc and Antofagasta Plc.
Read also: Anglo’s SA mine sales: This is no slam dunk, even for State-assisted buyers
To be fair, this year’s market-beating equities were last year’s worst. Anglo American saw three-quarters of its value evaporate in 2015, more than any other FTSE-100 stock. It’s only recouped about half of those losses this year.
Rival mine operator Glencore, the second-worst investment on the benchmark London index last year, is the second best in 2016.
Miners Rerouted
That’s largely because raw materials rebounded from a rout. The Bloomberg Commodity Spot Index is up 12 percent this year, after an 18 percent drop in 2015, on signs of recovering demand in China, the biggest consumer of natural resources.
It also follows efforts by miners such as Anglo and Glencore to cut debt and sell weaker businesses. Anglo plans to offload more than half its mines and quit iron ore and coal to focus on its best assets — diamonds, platinum and copper. Its first-quarter output released Thursday was more encouraging than results last year, Sanford C Bernstein said in a note.
Read also: Motsepe’s ARM lining up bid for Kumba as Anglo divestment accelerates
“If it can get from where it is today to where it wants to be within the next five years, I think Anglo is really interesting,” said Clive Burstow, who helps manage about $35 billion at Baring Asset Management Ltd. in London. and holds Glencore, Rio and BHP Billiton Plc but not Anglo American shares. “Now, they need to start delivering.”
Stretching Valuations
Even as the miners’ endeavors have been welcomed, analysts’ ratings aren’t yet rising.
Citigroup Inc. cut its outlook for metals and mining stocks to bearish from neutral this week, saying that the first-quarter rally left valuations stretched in the short term. Barclays Plc has said the recent upturn in Chinese data is ultimately unsustainable.
While companies like Anglo and Glencore have been the stars of 2016, their stretched balance sheets leave them vulnerable, according to Wrathall. Investec recommends investors sell both companies, while buying larger rival Rio Tinto Group.
“Things have gone a bit too far on valuations so far,” Wrathall said. “It’s still safe to stick with the stalwarts rather then go for the highly leveraged stocks, even though they are the best performers recently.”
Anglo shortlists buyers for its Brazilian phosphate business
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(Bloomberg) —Mosaic Co., the world’s largest producer of phosphate fertilizer, and a group led by Vale SA are among suitors picked to make final bids for Anglo American Plc’s niobium and phosphate business in Brazil, according to people with knowledge of the matter.
Brazil’s Vale is bidding with buyout firm Apollo Global Management, according to the people, who asked not to be identified as the details are private. Eurochem Group AG was also shortlisted to make a final offer for the assets, which could fetch as much as $1.5 billion, the people said.
Anglo Chief Executive Officer Mark Cutifani said in February there were 16 bidders for the assets and they could be sold by May. The London-based miner, which now focuses on diamonds, copper and platinum, put the Brazilian business up for sale last year as part of a wider plan to cut costs and debt amid a global rout in commodity prices.
Read also: Bidding Wars: South32 joins race for Anglo’s $1bn Brazil ops
After reporting a $5.6 billion loss last year, Anglo is accelerating asset sales in iron ore and coal production to raise as much as $4 billion this year. It expects to make 10 asset sales by the end of the second quarter, Cutifani said in February.
X2 Resources, the private-equity firm founded by former Xstrata Ltd. chief Mick Davis, and South32 Ltd. were also considering bidding for the niobium and phosphate business, people with knowledge of the process said in February.
A spokesman for Anglo said that the sales process is progressing as planned, while declining to comment further. Spokesmen for Eurochem and Mosaic declined to comment, while representatives for Apollo and Vale didn’t respond to requests for comment.
Anglo is selling metallurgical coal mines in Australia, a nickel business in Brazil and stakes in its manganese assets in South Africa and Australia, the company said in February. Last year it sold two copper mines in Chile to a group of investors led by Audley Capital Advisors LLP for $300 million in cash upfront.
