Image source: Anglo American plc
It is fair to say that 2023 has not been good for FTSE 100 Mining companies. All the main stocks of materials have fallen since the beginning of the year, but Anglo-American (LSE:AAL) stands out as the company with the worst performance in the index.
The stock fell 49% before rebounding from its lows to recover slightly. But in a cyclical industry where ups and downs are expected, is this an opportunity for an investor willing to be greedy when others are fearful?
Issues
Anglo American's problems this year highlight an unfortunate truth about mining companies. There are many things that can go wrong and there is not much you can do about it.
In the first part of the year, lower raw material prices and higher costs caused profits to decline from the previous year. None of these factors are under the company's control.
Neither is the slower-than-expected manufacturing recovery in China, which has been weighing on coal sales. And neither are the power grid problems in South Africa, which have created operational problems.
The expansion of copper production provided some reasons for optimism. And this was important for a company that derives more than 25% of its revenue from platinum, a metal used primarily in internal combustion engines.
Unfortunately, their most recent update is more pessimistic. To cut costs, the company cut its production outlook for both metals starting in 2024, causing shares to suffer their worst one-day drop since 2008.
Perspectives
The long-term risks with Anglo American are quite clear. The rise of electric vehicles means the prospects for Platinum are not great, and with 25% of its revenue coming from China, it is very exposed to that economy.
There is also significant cyclical risk that comes with the industry. Commodity prices tend to fluctuate with the economic environment and this causes profits to rise and fall.
The way I see it, the main reason to buy the stock right now is the idea that it could be at a peak of bearishness. The sharp decline in the share price recently somewhat justifies this idea.
In general, mining stocks have been struggling this year. But I would expect stock prices to rise across the board as the situation improves.
The open question, in my opinion, is when this will happen. With production set to remain subdued for some time yet, investors may have to wait a long time for the cyclical rebound that will help profitability.
Should you buy Anglo American shares?
Anglo American has been the worst performing stock in the FTSE 100 in 2023. Mining stocks have generally fared poorly, but the company's individual problems have caused its share price to fall more than its peers.
There could be an opportunity for investors who are willing to be patient here. But I think there are more obvious stocks to buy right now, so I'll put my money elsewhere.
