Stock market

Anglo American shares rise to £25, but I’m not selling!

Over the years, I have repeatedly argued that UK shares – in particular FTSE 100 – Looks like the deal is a buy. Already, 2024 has seen several attempts by bidders to buy undervalued UK businesses. And today (April 25), a blockbuster bid was sent. Anglo American (LSE: AAL) share price rise.

Anglo’s share 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 shy away from shares of well-known miners, as they are big polluters. Then again, demand for certain base and rare metals is going to increase as the global economy decarbonises.

History has taught me that, like commodity prices, mining stocks can be very volatile, with Anglo American being no exception. In fact, owning these shares in recent years has been like riding a roller coaster.

At its 52-week high, Anglo stock closed at 2,610.5p on 14 June 2023. It then crashed sharply, hitting a low of 1,630p before rebounding on 8 December. Yesterday, shares closed at 2,205p, up 575p (+35.3%) from December lows.

Today, the world’s largest mining company made an unexpected takeover bid from an Australian rival BHP Group, sent the share price rising. As I write, it hovers around 2,503.5p, valuing the group at £33.4bn.

Even after that sudden jump, the stock is up just 3.2% over one year and 25.2% over five years (excluding dividends). This is hardly ‘shoot the lights’ territory.

Mine!

For the record, my wife and I own Anglo American stock, paying 2,202pa a share for our shares in August 2023. After today’s boost, we have a paper yield of 13.7%, plus a dividend payable of $0.41 (32.9p) a share. May 3

Mining mega-deals happen every decade, but few have produced spectacular returns for shareholders. Clearly, BHP wants to buy Anglo American cheaply to increase its market share in copper production. This is expected to increase due to the rise in popularity of electric vehicles and renewable energy – and Anglo owns large copper mines in Chile and Peru.

That said, Anglo’s earnings have fallen due to falling prices for De Beers diamonds and platinum group metals. In addition, BHP’s offering is complex and difficult to value, including the demerger and spin-off of Anglo American Platinum and Kumba Iron Ore. They are listed in South Africa, which could be a problem for the country’s government.

I’m not selling.

Despite the 53.6% return in share price since the December low, I have no intention of selling my holdings at this all-share bid.

Typically, the mega-merger deal playbook goes like this. The initial offer is rejected. The bidder comes back with a higher bid, which may be rejected. Sometimes, other bidders throw their hats in the ring, the final offer wins, or the deal falls apart and the target’s share price sinks.

Personally, I’d like to see a consensus deal above 2,610.5p, the 52-week high for Anglo shares. Analysts suggest any knock-out bid could be more than £28 and perhaps £30 a share. So, I’m happy to sit back and wait for developments, collecting a cash yield of 3% a year!


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