Anglo American offers a potential long term spread trade

Written by Will Peters Monday, 02 August 2010 14:55

Goldman Sachs have said Anglo American stock could head up to 4350.

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Anglo American shares could hit 4350 say the equity analyst team at Goldman Sachs.

Should Goldman Sachs be right investors could expect a return of 72.31% on their investment had they bought at this morning's open share price at 2524.5.

Slightly less bullish on Anglo American, but bullish nevertheless, is Deutsche Bank who have called a target share price at 3450. That is 36.66% higher than today's open.

Backing the strong sentiment on Anglo American will of course be expectations that commodity prices across the globe are set to rise in line with an improving global economy.

The South African miners latest trading update will also have contributed to bullish optimism on the stock.

Pre-tax profits in the six months to June rose to $3.9bn (£2.5bn) from $3.6bn, but underlying earnings, which strips out impairment charges and disposals, rose 102pc to $2.2bn.

The company also said it was ahead of schedule on its cost-cutting measures and productivity increases.

"We continue to extract substantial synergies as a result of our organisational structure and scale," Cynthia Carroll, chief executive, said. "By the end of June, our asset optimisation and procurement programmes had achieved a run rate of $1bn of benefits, well ahead of expectations, and are making excellent progress towards our stated target of $2bn from our core businesses alone by 2011."

The dividend payment was suspended last year by Ms Carroll for the first time in 60 years as the sector was hit by plunging metals prices and subdued demand. "Reinstating the dividend has been one of the highest priorities for the Anglo board," Ms Carroll told The Daily Telegraph. An interim dividend of 25 cents a share will be paid on September 16.

The company is making "good progress" on its disposal programme and there are still some assets to be sold such as the UK rump of Tarmac and its Brazilian phosphate and niobium assets. In May, Anglo said it would sell its zinc mines to Vedanta Resources for $1.34bn and in February, agreed to sell parts of its Tarmac business for $400m.