Anglo American has had a difficult year as falling commodity prices and industrial action kept the pressure on the natural resources stock. The company announced a 48% jump in first-half profits but that was largely down to higher production levels and favourable foreign exchange movements. The miner has been ramping up its production output in order to combat crumbling metals prices.
The company’s platinum subsidiary in South Africa suffered an enormous drop in output as a disagreement with the trade union led to strikes which lasted five months. Anglo American Platinum revealed a 92% drop in underlying profits at the start of the week. Diamonds are the only major mineral that Anglo American mines which has remained resilient in terms of price, and this is down to high demand from the Middle-East. China’s appetite for metals has been dropping steadily for the past few years, and the latest trade balance figures from the nation indicate that demand will not be picking up anytime soon.
The slump in the metal markets has created buying opportunities for some mining companies, but Anglo American is at the other end of the spectrum, and has been disposing of assets in order to free up capital. The miner sold its 50% stake in its UK Tarmac business to its French business partner for £885 million, as it wanted to strip out its non-core assets. CEO Mark Cutifani stated he was open to takeover bids if it ‘created value’ but so far there have been no offers.
Anglo America will reveal its full-year numbers on Friday, and the consensus is for revenue of $27.34 billion and adjusted net profit of $2.1 billion. These forecasts equate to a 6.8% drop in revenue and a 19% decline in adjusted net income. The miner will also reveal its second-half numbers on the same date, and traders are expecting revenue of $13.2 billion and adjusted net income of $578 million. The first-half figures impressed investors — revenue came in at $14.2 billion and adjusted net income was $1.28 billion when the market was expecting $15 billion and $1.15 billion respectively.
Investment banks are bullish on the stock, and out of the 35 ratings, 12 are buys, 14 are holds, and nine are sells. The average target price is £13.02, which is 13% above the current price.
Equity analysts are even more bullish on Rio Tinto, and out of the 35 recommendations, 23 are buys, seven are holds, and five are sells. The average target price is £33.74, which is 11% above the current price.
The stock is encountering resistance at the 50-day moving average of £11.60, and if this level is held the recent low of £10.30 will be brought into play. A move through the 50-DMA will make £12 the target, and beyond that £13 will be in sight.