Rising Regulatory And Project Risks Will Curtail Copper Operations

Key Takeaways

• Global decarbonization, regulatory pressures, and industry trends threaten demand, pricing power, and valuations for Anglo American's core commodities and traditional mining operations.
  
• Geopolitical threats, operational setbacks, and rising ESG expectations together heighten risks, increase costs, and could significantly reduce profitability and cash flow stability.
  
• Streamlined portfolio, focus on copper and iron ore, operational improvements, and disciplined capital management position Anglo American for strong growth, resilience, and responsible value creation.

Catalysts

Operates as a mining company in the United Kingdom and internationally.

• Increasing global decarbonization efforts and the transition toward a circular economy are expected to erode demand for key Anglo American commodities such as steelmaking coal and could expose the company to higher compliance costs, potential stranded assets, and regulatory hurdles, directly impacting long-term revenue streams and asset valuations.
  
• Ongoing geopolitical instability and resource nationalism, particularly in South America and Africa, threaten Anglo American's large projects and operating jurisdictions with heightened risks of tax hikes, project delays, expropriation, or license loss, which could materially raise costs of doing business and introduce unpredictable earnings volatility.
  
• Significant operational risk remains in Anglo American's major copper projects, with Collahuasi facing continued cost overruns, lower-than-expected recoveries, and challenging mine transitions that have driven up expenses and compressed margins, while similar execution risks hang over the Woodsmith project and future copper expansions.
  
• Overall industry trends, such as increased adoption of metal recycling and substitution, are likely to diminish long-term demand for newly mined materials, potentially leading to lower sales volumes and pricing power for Anglo American's traditional mining operations, which could depress both revenue and net margins.
  
• Legacy and emerging ESG pressures, including controversies around environmental practices and social issues like water use and community displacement, may force Anglo American to incur higher remediation costs, legal liabilities, and capital expenditures to maintain its social license, ultimately reducing profitability and hampering the company's ability to deliver sustained cash flows.

Anglo American Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Anglo American compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Anglo American's revenue will decrease by 12.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -5.7% today to 10.3% in 3 years time.
• The bearish analysts expect earnings to reach $1.9 billion (and earnings per share of $1.83) by about August 2028, up from $-1.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 22.7x on those 2028 earnings, up from -21.1x today. This future PE is greater than the current PE for the GB Metals and Mining industry at 10.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.67%, as per the Simply Wall St company report.

Anglo American Future Earnings Per Share Growth

Risks

• Accelerated portfolio simplification and focus on high-quality copper and premium iron ore assets position Anglo American to capitalize on long-term demand growth, supporting higher margins and sustained revenue generation as electrification and steel decarbonization trends take hold.
  
• Operational excellence initiatives, including structured operating models, cost savings programs ($1.8 billion committed), and digitalization are already producing tangible improvements in unit costs and cash conversion, which are expected to further lift operating margins and free cash flow over time.
  
• Significant planned expansion of Tier 1 copper assets (Quellaveco, Los Bronces-Andina JV, Collahuasi) and premium iron ore resources (Serpentina, UHDMS at Kumba) provide strong earnings growth optionality and return on capital employed, particularly as these commodities benefit from secular demand tailwinds.
  
• Improvements in working capital management, sustainable capital allocation discipline, and anticipated deleveraging from asset divestitures (PGM, Steelmaking Coal, Nickel, De Beers) suggest a stronger balance sheet and enhanced capacity for shareholder returns in future periods.
  
• High-quality, long-life, expandable resource endowments and adherence to ESG best practices enhance Anglo American's competitive advantage, favoring premium pricing and long-term stability of earnings in a world increasingly focused on responsible sourcing and supply chain resilience.

Valuation

• The assumed bearish price target for Anglo American is £18.69, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Anglo American's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £27.47, and the most bearish reporting a price target of just £18.69.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $18.2 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 22.7x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of £22.1, the bearish analyst price target of £18.69 is 18.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.