Our opinion on the current state of ANGLO(AGL)

Anglo American (AGL) is well-regarded for its strategic approach to mitigating the typical risks associated with commodity stocks. The company achieves this through two primary means: a diversified portfolio and a robust balance sheet.

**Diversity of Minerals:** Anglo American's portfolio includes a variety of minerals, which spreads the risk and lessens the impact of any single mineral's price fluctuations. This diversification is crucial in stabilizing earnings as different commodities may experience cycles at different times.

**Strong Financial Position:** The second strategy Anglo employs is maintaining a strong balance sheet with significant liquidity, which enables the company to withstand negative market trends. This financial resilience is essential for riding out periods of economic downturn.

Anglo American markets itself as a globally diversified mining company with an impressive array of world-class operations and undeveloped resources. Since the start of 2016, commodity prices generally trended upward until the COVID-19 pandemic triggered a downturn in March 2020. However, the sector has seen a robust recovery post-pandemic, driven by economic expansion in major economies like the United States, Europe, and parts of Asia.

A notable project under Anglo American's belt is the Quellaveco mine in Peru, a significant copper venture where Anglo owns a 60% stake. The project, which cost $5.6 billion to develop, is expected to pay back its investment within approximately four years, with a projected operational lifespan of 30 years thereafter. This mine exemplifies the company's capacity for executing large-scale and profitable projects.

The global economic landscape, including the COVID-19 recovery and geopolitical tensions such as the conflict in Ukraine, continues to influence commodity prices. Precious metals, in particular, have seen price increases due to heavy sanctions on Russia. These factors collectively contribute to a favorable outlook for companies like Anglo American, which are poised to benefit from the ongoing commodity boom.

However, challenges persist. Issues such as unreliable rail service from Transnet, especially impacting operations like Kumba, and increased load shedding have posed significant operational challenges. Despite these hurdles, Anglo American plans to fully transition to renewable energy sources in South Africa by 2023, reflecting its commitment to sustainability.

Financially, Anglo American faced a tough year in 2023, with revenue down 13% and earnings per share (EPS) dropping dramatically by 94% in US dollars. The full ramp-up of Quellaveco was a high point, but it couldn't offset the significant revenue impacts from cyclically low prices in PGMs and diamonds. The company is undergoing a comprehensive review of all its assets to improve financial health further.

Despite these pressures, Anglo American's share price has shown resilience. After declining significantly, it began to recover following an acquisition offer from BHP, which proposes to exchange 0.7097 BHP shares for each Anglo share, post the unbundling of Kumba and Amplats. This offer could potentially increase, especially if competitors like Rio Tinto or Glencore enter the fray.

In conclusion, Anglo American's strategic management of commodity risks, coupled with its robust project pipeline and operational challenges, paints a complex but potentially rewarding picture for investors. As always, potential investors should monitor these developments closely, considering both the opportunities and the risks inherent in the commodity sector.