Over the years, I have repeatedly argued that the UK's actions (particularly in the FTSE 100 – appear to be bargain buys. 2024 has already seen multiple takeover attempts by bidders seeking to buy undervalued UK companies. And today (April 25), a blockbuster offer sent the Anglo-American (LSE: AAL) share price soars.
Anglo Stock Slide
Footsie stalwart Anglo American is a multinational mining company. It sells a wide range of commodities worldwide, including coal, copper, diamonds, iron ore, nickel, platinum group metals and steelmaking coal.
However, environmental, social and governance (ESG) investors often avoid stocks of major miners as they are big polluters. Furthermore, demand for certain base and rare metals will increase as the global economy decarbonizes.
History has taught me that, like commodity prices, mining stocks can be very volatile, and Anglo American is no exception. In fact, owning these stocks over the past few years has been like riding a roller coaster.
At its 52-week high, Anglo shares closed at 2,610.5p on June 14, 2023. They then crashed sharply, bottoming out at a low of 1,630p on December 8 before recovering. Yesterday, the shares closed at 2,205p, 575p (+35.3%) from the December low.
Today, an unexpected takeover bid from the world's largest mining company, its Australian rival BHP Group, drove up the share price. As I write, it is around 2,503.5p, valuing the group at £33.4bn.
Even after this sudden jump, this stock is up only 3.2% in one year and 25.2% in five years (excluding dividends). That's not “lights out” territory.
Mine!
For the record, my wife and I own Anglo American shares and paid 2,202 per share for our stake in August 2023. After today's boost, we have a paper profit of 13.7%, plus a dividend of 0.41 dollars (32.9p) per share that expires on May 3.
Mega mining deals happen every decade, but few have produced outstanding returns for shareholders. Clearly, BHP wants to buy Anglo American cheaply to increase its market share in copper production. This figure is expected to rise as electric vehicles and renewable energy gain popularity, and Anglo owns major copper mines in Chile and Peru.
That said, Anglo's profits have slumped, hit by weak prices for De Beers diamonds and platinum group metals. Furthermore, BHP's bid is complicated and difficult to value as it involves the spin-off and spin-off of Anglo American Platinum and Kumba Iron Ore. These are listed in South Africa, which could be a problem for that nation's government.
I'm not selling
Despite the stock price's 53.6% recovery from its December low, I have no intention of selling our stake in this IPO.
Typically, the playbook for mega-merger deals is as follows. An initial offer is rejected. The suitor returns with a higher offer, which may also be rejected. Sometimes other bidders jump into the ring, a final offer wins, or the deal falls through and the target's stock price plummets.
Personally, I would like to see a deal agreed well above 2,610.5p, the 52-week high for Anglo shares. Analysts suggest any takedown offer could exceed £28 and perhaps £30 per share. So, I'm happy to sit back and wait for developments, while earning my 3% annual cash return!
