Anglo American’s falling shares fuel takeover rumours

Speculation about Anglo American (LSE: AAL) becoming the target of a takeover by a rival or a private equity firm keeps mounting, as shares in the diversified miner continue to fall.

Like most of its peers, the company has been hit by weak commodity prices and rising costs globally. Its stock, currently trading at 1,710p ($29.19), is down almost 48% this year, which means the copper, diamonds, iron ore and platinum miner has lost about £30 billion ($51.2 billion) of its value so far this year.

Anglo’s shares suffered their biggest single-day fall since the pandemic on Friday when the miner cut overall production targets by 4% for 2024 and a further 3% for 2025.

Brokerage firm Jefferies and banks, including Barclays and RBC, have cut their target price for the stock in response. They noted that Anglo American has significantly underperformed other London-traded top miners such as Rio Tinto (LSE: RIO), which is down less than 6% this year, and Glencore (LSE: GLEN), down only 1% so far in 2023.

If Anglo American doesn’t turn operations around and its share price continues to lag, Jefferies analysts say they can’t “rule out the possibility that Anglo is involved in the broader trend of industry consolidation,” according to their research note.

Analysts at Bernstein Research agree. They say that Anglo’s low valuation and diversified portfolio makes it an attractive target for potential acquirers, who could unlock value by selling off some of the assets or restructuring operations. 

Bernstein estimates that a bidder could pay a 30% premium to Anglo’s current market value and still generate a return of 15% on their investment. 

“We believe Anglo American is the most likely takeover candidate in the sector,” they wrote in a note to clients. “We think the company is undervalued, undermanaged and underappreciated.”

Logistical issues

CEO Duncan Wanblad, who took the reins in April 2022, said on Friday that logistical difficulties at its top copper mines in Peru and Chile, as well as at its South African unit, Kumba Iron Ore, had led to the cut in production forecasts. He also said the company would cut capital expenditure by US$1.8 billion ($2.4 billion) by 2026.

Key operating issues over and above prior expectations included suspending Los Bronces’ older plant (one of two) due to harder ore, rescheduling of the mine plan at Quellaveco due to geotechnical issues, additional ramp-up challenges in metallurgical coal, persistent infrastructure issues at Kumba, and ore hardness/maintenance for Minas-Rio.

In February, Anglo also took a US$1.7 billion-hit on its Woodsmith project to produce fertilizer nutrients in the north east of England.

“We think Anglo is now a show-me story without a bottom-up near-term catalyst, but value remains and we continue to expect a better year from its commodity suite in 2024,” RBC Capital Markets analyst Tyler Broda said in a note.

Expert consensus seems to be that Anglo American can be worth up to 50% more than its current market capitalization of £23 billion (US$28.8 billion) in a takeover scenario. 

There are, however, significant barriers to a deal, such as political risks in some of the countries where the miner operates, regulatory hurdles and environmental liabilities. 

The majority of analysts consulted for this story think the company’s management is likely to resist any hostile approach and will, instead, focus on improving its performance through cost-cutting, asset sales and debt reduction.