Anglo American (AAL) Ordinary USD0.54945

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Anglo American is set to generate up to $4.9bn from the sale of its steelmaking coal portfolio. A $1.1bn deal for its stake in the Jellinbah project was announced earlier in November, and an agreement is now in place to sell the remaining portfolio for up to $3.8bn.

The Jellinbah sale is expected to be completed in the second quarter of 2025, and today's deal in the third quarter - both subject to regulatory approvals.

Plans are underway to demerge the platinum business by mid-2025, and progress is being made on the sale of the nickel business. Following that, the diamond business De Beers will be the next separation target.

Anglo is on track to deliver $1bn in cost savings and is planning an additional $800mn of recurring savings by the end of 2025.

The shares rose 2.0% in early trading.

Our view

Anglo is pushing on with a hefty portfolio reshuffle. Management is looking to create a more agile and streamlined business with a focus on copper, premium iron ore, and crop nutrients. But getting there will take some work.

With sales agreed for the steelmaking coal assets, at what looks like a decent combined price, focus can turn to platinum, nickel and diamonds. There’s a mixture of sales, de-mergers and other options on the table to ensure maximum shareholder value is achieved. But no matter how well-planned this process is, there’s a lot of risk.

Broadly speaking we are supportive of the move. Recent takeover talk has accelerated these plans, but for a while now it had looked like Anglo was struggling to unlock the full potential of its assets while housing them all under one roof.

Once complete Anglo’s current production will be close to an even split between copper and iron ore. These are two areas we’ve liked for some time. For copper, the Quellaveco mine in Peru finished its ramp-up over 2023, and in Chile, there are plans to increase production from Collahuasi – both are high-margin assets.

The iron ore portfolio is set to expand with the Vale deal adding a fresh resource base to the Minas-Rio mine. We like the deal, it gives access to higher-grade ore which is not only more attractive to buyers but should also lead to lower costs. But it’s a long way off, so not something likely to have an impact anytime soon.

Then there’s Woodsmith, an exciting crop nutrient asset currently in the early stages of development. The breaks have been put on, the asset value impaired once again, and investment is set to slow from previous plans. We think this is another good move, the best outcome is for Anglo to bring on a partner to share in the development costs, and the risks.

Sentiment around Anglo before all the offer talk came along was questionable, after production cuts and struggling performance from some of its assets. We think the new strategy has a good chance at unlocking value, and the proposition of a more streamlined Anglo focused on copper and iron ore is attractive.

But executing such a huge reshuffle brings a host of risks and is expected to take a couple of years to complete. The near term has become quite tricky to map, and investors should prepare for volatility.

Environmental, social and governance (ESG) risk

Mining companies tend to come with relatively high ESG risk. Emissions, effluences and waste and community relations are key risk drivers in this sector. Carbon emissions, resource use, health and safety and bribery and corruption are also contributors to ESG risk.

According to Sustainalytics, Anglo American’s management of material ESG issues is strong.

Climate targets include carbon neutrality across operations by 2040. There are also targets for a 30% improvement in energy efficiency and a 50% reduction in freshwater withdrawal against 2016 levels in water scarce areas by 2030. There is a strong renewable energy programme, which is expected to fully meet energy needs in Chile, Brazil, Peru and South Africa.

ESG data sourced from Sustainalytics.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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