Barclays Upgrades Kaz Kaz Minerals As It Reviews Mining Sector
Barclays upgraded Anglo American to ‘equalweight’ from ‘underweight’ and lifted the price target to 845p from 550p on strong valuation support and solid earnings momentum, particularly from the recent rally in coking coal which leaves the balance sheet in a much better position than the bank had expected.
“Had it not been for our cautious outlook on the diamond and platinum group metals markets, and continued labour/political uncertainty in South Africa, we would have been more positive on the investment case,” Barclays said.
It said management remains intent on shrinking the business to its core commodities of diamonds, copper and platinum, which it thinks has some merit given these divisions’ assets are tier 1 and competitively positioned on its commodity cost curves.
“However, with the balance sheet now in a much better shape, it will be interesting to see any further change in tone around ‘value leakage’ as witnessed at the interim results, and as such could see the process of further assets sales slowed/delayed.”
The bank also upped Kaz Minerals to ‘equalweight’ from ‘underweight’, raising the target to 210p from 130p. It said the company has averted more material downside scenarios for equity holders through a combination of strong cost control, so far smooth ramp-up of the Bozshakol and Aktogay projects, and a copper price that has that has allowed it to avoid needing to access debt or equity markets.
“We are constrained from becoming more positive, however, on the grounds that Kaz is trading at parity on EV/EBITDA to Antofagasta on our base case forecasts in 2017-18 with the projects no longer capitalised, while free cash flow yields remain negative; the same is true on spot.”
Barclays upgraded South32 to ‘overweight’ from ‘equalweight’ and upped the price target to 160p from 80p. It said that despite mark-to-market earnings before interest, tax, depreciation and amortisation having risen almost fourfold from the December lows, the investment case remains attractive.
“This is because it passes the basic tests of having a good weighting of tier 1 assets, a management team that has is focused on and executing a simple strategy for value creation, a very robust balance sheet and extremely cheap valuation metrics.”
Barclays downgraded Hochschild Mining to ‘equalweight’ from ‘overweight’ but lifted the price target to 280p from 180p. It said that in the near term, the company needs to find the ounces to sustainably increase production and reach its target of 10 years of reserve and resources. “That won’t happen overnight,” the bank said.
More generally, the bank lifted its stance on the European mining sector to ‘positive’ from ‘neutral’.
At 0930 BST, Anglo shares were up 2.8% to 881.80p, Kaz was up 5.3% to 212.10p, South32 was up 1.7% to 138.50p and Hochschild Mining was down 1% to 256.80p.