Anglo's 80% Gain Sounds Great Until You Look at the Annual Chartby
No `major calamity, Lehman hasn't gone bust again,' Meyer says
Interest-rate outlook, dollar bring relief to indebted miners
Anglo American Plc’s near 80 percent gain in three weeks sounds spectacular until you see the chart for the past year.
Miners are rebounding as existential fears for some members of the highly indebted industry have been set aside. Glencore Plc has gained 46 percent since a Jan. 14 low.
There’s not “been a major calamity, Lehman has not gone bust again, policy makers are expected to loosen monetary policy,” said John Meyer, a mining analyst at broker SP Angel Corporate Finance LLP in London. “It does look as if things have turned and generally prices are likely to rise again. Anglo is seen as more leveraged to that.”
The quashing of prospects for higher U.S. interest rates this year has also pushed the dollar to near three-month lows, making commodities priced in the currency cheaper for the biggest consumers and helping miners. The Bloomberg World Mining Index is up 19 percent in since Jan. 20, adding $70 billion to the value of the 80 equities it tracks.
Anglo, reporting full-year earnings tomorrow, also plans to sell or shut more than half its mines to cope with collapsing commodity prices and has scrapped its dividend. Glencore has cut payouts, sold shares and announced asset sales to strengthen its balance sheet.
The two were the worst performers in the benchmark FTSE 100 Index of major U.K. stocks last year, losing more then two-thirds of their value as metal prices collapsed to six-year lows. While they’re among the biggest gainers this year, analysts at banks including Jefferies LLC and Investec Plc caution that much of the industry’s rally is unjustified.
“These are most leveraged,” said Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London. “In 2015, the consensus short was oil and gas and mining. That’s not going to work again for 2016. Unwinding those positions gives some a relief.”