What would you say to a share price that’s soared by more than 800% since January 2016? Admittedly that’s from a crisis low, and it’s a very volatile share. In fact, looking back further, the shares are actually down 38% since their previous peak in December 2010.
Production weakness
It’s Anglo American (LSE: AAL) I’m talking about, and the miner has just reported mixed Q1 production. Diamond delivery from subsidiary De Beers dropped 8%, and output of less esoteric products was a bit lower overall.
Copper production rose by 4%, though platinum and palladium dropped by 5% and 6%, respectively. Kumba iron ore production also fell 12%, but a ramp-up at Minas-Rio saw iron output up 61%.
Metallurgical coal output fell 25%, and thermal coal dipped by 2%. Production guidance for the full year remains pretty much unchanged across the board.
Anglo American shares are now valued on P/E multiples of around 10-11, up from the 7-8 range just a few years ago, and forecast dividend yields are looking decent at better than 4%. So why am I getting twitchy about a stock I’ve been generally positive about?
One fear is the effects of a global over-production of iron ore, especially when we’re getting mixed signals from the world’s steel markets. The other is that I think we might be close to a top in the cyclical mining sector, and strong share price gains of the past few years could be coming to an end.
On the whole, Anglo American’s P/E seems about right for its cyclical risk right now, and I’m not tempted.
Copper
Despite a big stumble in summer 2018, KAZ Minerals (LSE: KAZ) shares have had a great five years with a 170% gain. But despite that, they’re still priced on a forward P/E of only eight, dropping to seven on 2020 forecasts.
There’s very little in the way of dividends yet, with yields of only 1.2-1.5% on the cards, but they’re starting to ramp up.
KAZ’s main product is copper, and first-quarter production rose by 4% over the previous year. The company also says it’s “on track to achieve 2019 guidance of c.300 kt” as it expects higher output in the next nine months. The firm’s Aktogay facility, it’s biggest contributor in the period, enjoyed a record quarter.
Gold production was down slightly, with silver production up, and KAZ has maintained its full-year production guidance for all three metals.
Turnaround
KAZ’s turnaround of the past few years has been impressive, and it’s managing to maintain low production costs and relatively high margins at its “large scale, low cost, open pit mining in Kazakhstan, Kyrgyzstan and Russia.”
I’m seeing a competitive edge here, and don’t see the same oversupply risks that afflict the iron business. Copper demand has been steadily strengthening and looks set to hold up for some time yet, and there are fewer copper diggers around than iron delvers.
I was upbeat about KAZ Minerals in January and, though the share price has risen since then, I still am.