It’s fair to say that 2023 hasn’t been good for FTSE 100 mining companies. All of the major materials stocks are down since the start of the year, but Anglo American (LSE:AAL) stands out as the worst performer in the index.
The stock has fallen 49% before bouncing off its lows to recover slightly. But in a cyclical industry where ups and downs are to be expected, is this an opportunity for an investor prepared to be greedy where others are fearful?
Problems
Anglo American’s problems this year emphasise an unfortunate truth about mining businesses. There’s a lot that can go wrong that they can’t really do much about.
In the earlier part of the year, lower commodities prices and higher costs caused profits to decline from the previous year. Neither of these factors is under the company’s control.
Nor is the slower-than-expected manufacturing recovery in China, which has been weighing on coal sales. And nor are the power grid issues in South Africa, which have created operational issues.
Expanded copper production provided some cause for optimism. And this was important for a business that gets over 25% of its revenues from platinum — a metal mostly used in internal combustion engines.
Unfortunately, its most recent update is more pessimistic.To lower costs, the company cut its production outlook for both metals from 2024 onwards, causing the stock to suffer its worst one-day decline since 2008.
Prospects
The long-term risks with Anglo American are clear enough. The rise of electric vehicles means outlook for platinum isn’t terrific and with 25% of its revenues coming from China it’s heavily exposed to that economy.
There’s also a significant cyclical risk that comes with the industry. Commodities prices tend to fluctuate with the economic environment and this causes profits to rise and fall.
As I see it, the main reason to buy the stock at the moment is the idea that it might be at a point of maximum pessimism. The sharp fall in the share price recently goes some way towards justifying this idea.
Across the board, mining stocks have been struggling this year. But I would expect share prices to rise across the board as the situation improves.
The open question, to my mind, is when this will happen. With production set to stay subdued for a while yet, investors could be waiting a long time for the cyclical uplift that will help profitability.
Should I buy Anglo American shares?
Anglo American has been the FTSE 100’s worst performing stock of 2023. Mining stocks in general have fared badly, but the company’s individual issues have caused its share price to fall more than its peers.
There might be an opportunity for investors that are willing to be patient here. But I think there are more obvious stocks to buy at the moment, so I’ll be investing my money elsewhere.
