| |
Where’s the fire?
David McKay
Posted: Mon, 28 Feb 2005
[miningmx.com] -- TWICE now a question regarding the relative underperformance of Anglo American to its British peer group – including BHP Billiton and Rio Tinto – has been met with bemusement by the South African group’s management. It simply argues that the performance of its share price is a matter for investors, not management.
Nonetheless, it would be interesting to know what Anglo – as a modern, self-regarding, sentient public company – thinks of its position in the market.
Anglo American CEO Tony Trahar offered the defence that the company’s peer group was more heavily exposed to iron ore, a commodity du jour if ever there was one. That might account for the 75% improvement since February 2004 in the share price of Brazilian iron ore producer CVRD. In contrast, Anglo’s share price is unchanged, while BHP Billiton and Rio Tinto are 40% and 30% higher
respectively.
According to John Clemmow, of Investec, who has asked the questions about Anglo’s share price underperformance, investors simply choose the alternative diversified miners in preference to Anglo and not simply owing to the SA group’s political risk.
“What’s changed in the past 12 months regarding SA?” asks Clemmow. “The fact of the matter is that Anglo’s share price should be flying on a 57% earnings increase. But it’s not.”
A decision to walk away from Zambian copper project Konkola Deeps a year before the 104% appreciation in the copper price between 2003 and 2005 – and the counter-cyclical bet to move into paper, sacking and industrial minerals – has not set the hearts of international investors pounding.
So it’s with some irony that on the day Anglo announced its results that Rio Tinto should unveil a 71% price increase for iron ore in 2005, repeating CVRD’s earlier contract price success.
BHP Billiton is expected to
produce similar results, an outcome that, according to RBC Capital Markets, will boost Rio Tinto’s and BHP Billiton’s 2005 earnings 22% and 10% respectively. In the same research note, the stockbroker said that Anglo’s 59% improvement in 2004 headline earnings was “. . . solid but fails to excite”.
Anglo also seems to have less cash available. Whereas BHP Billiton unveiled an aggressive US$2bn capital management programme, Anglo said it was too growth orientated to consider such a step. “If we had a surplus of capital we’d consider a return to shareholders,” Trahar said. Yet Anglo’s $4,bn project pipeline is smaller than that prepared by BHP Billiton.
Anglo’s $8bn in unapproved projects also include the highly speculative $343m expansion of Anglo Platinum’s Twickenham prospect, and Gamsberg, a zinc project Trahar said could not yet be launched. In truth, Gamsberg has been sitting on the sidelines for decades and may never be undertaken.
Piet Viljoen, a fund
manager at Regarding Capital Management, says that BHP Billiton and Rio Tinto currently attract the dibs of momentum investors interested in the positive news flow from which these counters benefit.
Says Viljoen: “Anglo’s all about diamonds, gold and platinum, which, as commodities, are probably a bit unfashionable.”
| |
