Investing.com -- RBC Capital Markets has raised its rating on Anglo American (JO:AGLJ) to “sector perform” from “underperform,” in a note dated Tuesday, citing a series of restructuring successes that have exceeded expectations.
The upcoming spin-off of Anglo Platinum in June is a key factor in the revised outlook, along with valuation adjustments that reflect a higher proportion of earnings from copper.
The price target has been increased to 2,310p from 2,200p, with valuation multiples adjusted to account for the evolving composition of the business. Management has moved faster than anticipated in executing disposals and restructuring efforts.
Since the January downgrade, Anglo American has secured a favorable price for its nickel business, reached a marketing agreement with Botswana, and finalized a joint venture with Codelco. These developments have helped offset downward earnings revisions of 11% year-to-date.
The spin-off of Anglo Platinum is expected to streamline operations, increasing copper’s contribution to earnings from 50% to 60%.
The listing will see 46.8% of Anglo Platinum’s shares distributed to Anglo American shareholders.
While some market participants have speculated that this move could lead to a re-rating, RBC Capital Markets does not share this view, given that Anglo Platinum trades at an EV/EBITDA multiple of 8.6x versus 6.7x for Anglo American. The post-spin valuation of the remaining business is projected to settle at 6.3x.
The restructuring has also improved the company’s position in discussions regarding the Woodsmith polyhalite project.
RBC Capital Markets now assumes a 30% stake sale in Woodsmith for $600 million in the fourth quarter of 2025, aligning with a valuation of $2 billion at 0.5x NPV.
Balance sheet improvements, with net debt expected to fall to $6.8 billion by the end of 2025, along with a potential $1.8 billion from the sale of the final 19.9% stake in Anglo Platinum, provide flexibility in securing a partner for the project.
Diamond prices remain a concern, but recent indicators suggest stability. While De Beers has faced impairments and production downgrades, no new price lows have been recorded since January 19.
The valuation for De Beers stands at approximately $3.2 billion based on the junior diamond sector’s 1.1x EV/sales multiple, compared to RBC’s NAV estimate of $2.7 billion.
Uncertainty remains around Botswana’s potential for increasing its stake in De Beers, but the recent marketing agreement is viewed as a positive development.
Anglo American remains unlikely to attract takeover interest at current levels, with its share price trading at only a 0.4% discount to BHP’s final offer.
Given the premium that would be required for a potential bid—an estimated 30% to bring the valuation to 8.1x EV/EBITDA—RBC Capital Markets sees limited near-term likelihood of acquisition interest from major players like BHP (ASX:BHP), Glencore (OTC:GLNCY), or Rio Tinto (NYSE:RIO).
Copper remains a bright spot, with prices up 11% year-to-date, driven by seasonal demand and Chinese stimulus measures from late 2024.
However, longer-term concerns about global trade tensions persist, with RBC Capital Markets forecasting copper at $4 per pound for the second half of 2025 and $4.50 per pound in 2026.
The outlook for iron ore remains neutral, with projections of $98.3 per ton in 2025 and $85 per ton in 2026.
Supply disruptions and potential steel reforms in China could support pricing, but increased production from new sources such as Simandou presents a downside risk.
RBC Capital Markets has revised its valuation methodology to better reflect Anglo American’s increasing exposure to copper, aligning copper and platinum-group metals multiples with those of Antofagasta (LON:ANTO) while maintaining diversified mining multiples in line with Rio Tinto.
This results in an increase in the net present value multiple from 1.15x to 1.3x and a rise in the forward EV/EBITDA multiple from 5.5x to 7.1x.
Operating and financial estimates have also been adjusted following the removal of Anglo Platinum from projections for the second half of 2025 onward.
Capital expenditure has been reallocated based on the long-term guidance of $2 billion per year for iron ore and copper operations.
This shift reduces unallocated capital expenditure by 77% over the next decade, while increasing allocations for copper and iron ore by 53% and 66%, respectively.
Free cash flow projections have been revised to reflect changes in operating assumptions, with estimates of $1.78 billion in 2025, $768 million in 2026, and $1.8 billion in 2027.
Net debt is forecasted to decline to $6.8 billion by the end of 2025, down from the previous estimate of $8.1 billion.
Shares of the miner was up 1.7% at 07:32 ET (11:32 GMT).