Anglo has had a very poor week

The mine workers strike at Amplats is still not resolved, we have seen another extension of the offer from Amplats. The first return to work offer was tabled on the 27th of October, the talks had started with the workers, the company and the represented unions. There has since not been an extension, but according to the Anglo American Platinum update on 9th of November, workers were to return by 12 November, or the offer would lapse. There is a MiningMx story from last evening which suggests that the strike could actually end today: Amplats breaks 8-week strike with new offer.


That last part: "The strikes have cost Amplats close to 170,000 ounces in lost platinum production which would fetch around $250m at current spot prices, Reuters said" was highlighted in a trading statement from Aplats yesterday. The company said that they expect to make less than 20 percent (no range) than they made in the prior period. Less than 20 but not less than ...... ? is hardly encouraging for shareholders. Of course if you needed reminding, Anglo American holds four out of every five shares at Amplats. And it has been a bad week for them, Capex overrun at Minas-Rio, Kumba Iron Ore earnings to be lower (Anglo own nearly two thirds of Kumba) and now this trading statement from Amplats. Eish.


No wonder the stock looked so cheap, the market knows. I have already seen a few sell recommendations on Anglo American. And earnings are expected to slump. I saw a note that suggested the following: "Anglo trades in line with the sector average but in our view demands a discount. As such, we reiterate our SELL recommendation." I have however also seen lots of buys and holds, an equal amount, so let us just say that the jury is out on this one. Trying times indeed. Forward the stock demands a multiple of around 14 times, which does seem expensive considering the deep fog that seems to have set over it.

Talking fog, let us just put this out there. Anglo American costs on Minas-Rio are set to be roughly 20 percent of their current market cap. How did I work that out? I took the Pound Sterling market cap, 23.68 billion Pound Sterling and then multiplied it by the Dollar currency cross, 1.5845 and got to 37.52 billion Dollars. 8 billion dollars is to that market cap 21.3 percent. In April of this year, if you read this document, Minas-Rio is one of our four major strategic growth projects, it says: "The $5 billion project is expected to produce 26.5 million tonnes per annum." Add the revised upwards costs of 8.8 billion, that is the high number, and the whole cost of the exercise is closer to 14 billion Dollars. That includes the purchase price. Wow. Words fail me really.


Two difficult phone calls to have made would have been the project co-ordinator to Cynthia Carroll and then her call to the chairman John Parker. And then, the more important question is, when Anglo American start shipping iron ore in 2014, what is the iron ore price going to be, and what will global steel demand look like? I suspect that global steel demand will be robust, still driven by the Chinese consumption, albeit at a much slower rate than before. All around, this project has been awful for the company and is perhaps the main reason why Cynthia Carroll resigned, or was forced out. Yech. And if you needed reminding of how bad it has been, MTN and Richemont are breathing down Anglo American's neck here in Jozi, in terms of market capitalisation. Richemont are a mere 7 percent away from Anglo, whilst MTN are only 9 percent away. Different histories, MTN and Anglo American, the one is a whole 77 years older than the other. Wow. Times changed quickly. If MTN were a person, they would only now be illegible to vote or get a drivers licence this year.