23. December 2020 | 09:00 CET
Anglo American, Fokus Mining, Newcrest Mining: Strategy and timing lead to success
The fact that gold has lost none of its status as a crisis metal can sometimes be seen in small price movements: While the overall market initially went into reverse gear at the start of the week given the new virus mutation, gold gained ground. For long-term investors, such small movements do not make much difference, but they show that certain correlations are still intact: When nervousness rises in blue chips, gold benefits. Reason enough to also take a closer look at some companies from the sector.
time to read: 3 minutes by Nico Popp
Anglo American: Cyclical with coal penalty
Many investors regard the British Company Anglo American as a standard commodity stock. Some investors fail to realize that the Company has nothing whatsoever to do with gold. But gold is not everything: Anglo American mines platinum and diamonds, among other things, and is thus in the broadest sense also a Company that can profit from crisis developments. The copper share of just under 20% is also interesting - after all, copper is scarce and a critical raw material for electromobility.
The fact that broadly diversified companies do not always have only advantages becomes apparent when looking at the rest of the portfolio at Anglo American: The coal share of 12% should not only make committed environmentalists startle. Investors with a focus on promising business models are also likely to sit up and take notice given Anglo American's coal share. What's more, this split isn't even helping the Company get through the crisis any better. In the first half of the year, sales fell by more than 15%, and the Company emphasizes that there may be further irritations in the year. On a 12-month view, the share price rose by about 12%, and recently a chart breakout was achieved due to the better economic outlook. Anglo American is and remains a very cyclical stock.
Fokus Mining: Financed Gold Seeker with Relative Strength
Shares of exploration companies are also considered classically cyclical. Since the raw material is still in the ground, exploration stocks also price in a higher risk than commodity companies that produce daily. The reason is that production takes time and capital. But if production becomes more likely, such shares also offer great potential for high price gains. One such stock is Fokus Mining. The Company operates in the Canadian state of Quebec in the middle of a gold mining area. The Company plans to drill a total of 40,000 meters in 2020 and 2021. The capital for this has been in the coffers since the fall.
The Company also points to the excellent infrastructure of its project only about 30 km away from the Rouyn-Noranda mining district: Among other things, the property is located in the immediate vicinity of a highway. At the beginning of the pandemic, the share was still trading around EUR 0.05 and climbed to the EUR 0.30 mark in late summer. Since then, the value has entered a consolidation movement. Nevertheless, given the current price of around EUR 0.25, the share must be seen as having great relative strength. This strength is probably due, among other things, to the fact that the Company succeeded in obtaining its financing at excellent conditions of CAD 0.40 per share. The dilution for existing shareholders was, therefore low. Even given this mixed situation, investors can make a note of this gold explorer.
Newcrest Mining: The share remains cautious
The share of Newcrest Mining is also considered fundamentally promising: The commodity producer benefits from rising prices for gold and copper. While the precious metal contributes slightly more than 80% to sales, the industrial metal accounts for just under 20%. However, this mixture did not go down well on the stock market in 2020: Over a year, the share price fell slightly. But, this does not appear to be fundamentally justified: The Company has participated in several projects in recent months and thus seems to be well-positioned for the future. Also, the production costs of less than USD 900 are quite competitive and give hope in case of further rising gold prices.
The long-term chart shows that Newcrest Mining's stock has bumped its head twice in the EUR 21 and EUR 22.50 area and dipped again. Investors should consider this resistance zone for long-term engagements. Fundamentally, however, the commodity producer appears to be well-positioned. The Company also has a high equity ratio compared with the rest of the sector. Potentially, this could be conducive to inorganic growth and also give the share new impetus in the medium term.
Beware of "general stores"
The three commodity stocks Anglo American, Fokus Mining and Newcrest Mining show that there are significant differences in companies from the sector. In addition to the focus on different commodities, issues such as economic sensitivity or financing conditions and timing also play a role. Investors would do well to focus on companies with a clear strategy instead of broadly diversified "general stores".