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Anglo American between a rock and a hard place

Anglo American (LON:AAL) has made two big strategic moves in the last fortnight but it is a long way from being out of the woods, JPMorgan argues.

On January 8 the group unveiled its new chief executive officer (CEO), Mark Cutifani, who starts on April 3, while on January 15 its Amplats subsidiary published a strategic review of its platinum business, which caused uproar in South Africa as it flagged 14,000 job losses.

JP Morgan (JPM) considers Cutifani “the stand out candidate for addressing Anglo American’s long term underperformance” relative to peers.

JPM notes Anglo has lagged BHP Billiton (LON:BLT) by 413% and Rio Tinto (LON:RIO) by 134% in the last ten years, so Cutifani has a lot of catching up to do.

Unfortunately, in JPM’s view, the shares are set to be weighed down this year by the difficulty and fall out of implementing essential operational change in South Africa.

Anglo American derives most of its earnings from South Africa; JPM’s numbers project 54% of Anglo American’s full-year earnings will come from South Africa in 2013.

“We reduce our Dec-13 target price to £16.30/shr (£16.70/shr previously) and reiterate our underweight [rating],” JPM’s Frasier Jamieson said.

Anglo American releases a trading update this Friday in which it will report fourth quarter production data.

Citigroup has forecast “a disappointing 15% drop in copper equivalent volumes year-on-year,” noting most operations have been plagued by labour issues, declining grades and/or weak markets.

Citi’s key forecasts are: equivalent refined platinum down 50% year-on-year to 292,000 ounces; diamonds -16% to 5.5mln carats, copper -9% to 154,700 tonnes, iron ore -14% to 10.7mln tonnes.

John Harrington
John Harrington


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