Rio Tinto still top pick among mining majors according to JP Morgan
In a tough market for commodities, JP Morgan believes the major mining groups with low costs, good cost control and high-quality growth projects are the ones to follow.
With earnings under pressure and macro uncertainty abounding, it's all about relative performance now, according to analyst Fraser Jamieson.
"In an environment of more stable, albeit high, commodity prices, we believe those companies with low costs, good cost control and high-quality growth projects plus value-accretive capital allocation should be rewarded with higher relative ratings."
He says even with the potential for a macro-economic inspired rally later this year, making money in the sector will "increasingly rely on picking the relative winners, in our view."
Rio Tinto remains his top pick with an ‘overweight' rating, but the analyst said his preference of Rio over BHP Billiton (LON:BLT, ASX:BHP, NYSE:BHP & BBL) is narrowing.
For now, Rio, (LON:RIO, 3,000 pence) combines high-quality growth and a relatively flexible balance sheet while trading at a 25 percent discount to BHP Billiton (1,951 pence) on a net present value basis. He rates BHP Billiton as 'neutral'.
Anglo American (LON:AAL, 1,915 pence) gets a downgrade to ‘underweight' from ‘neutral', as its struggle continues following last month's disappointing interim results.
With the outcome of the top-to-bottom review of its platinum operations, announced earlier this year, still uncertain and several of the key projects under delivering, a reversal of Anglo's underperformance appears some way off, the analyst said.
Jamieson also upgraded Chile-focused copper miner Antofagasta (LON:ANTO, 1,105 pence) and Eurasian Natural Resources Corp (LON:ENRC, 357 pence), to ‘overweight' from ‘neutral' and to ‘neutral' from ‘underweight', respectively.
Antofagasta has its challenges, he said, but also offers low-risk growth, low cost positioning, solid cashflow generation and strong cash balance sheet.
ENRC is due to release a strategy update in October and delivered slightly underwhelming interims this month.
While other brokers have cut the price target or downgraded their stance, the company still boasts undrawn credit facilities of US$1.5 billion and a further US$1.5 billion in the bank.
Kazakhmys (LON:KAZ, 717 pence) is downgraded to ‘underweight' from neutral, because Jamieson believes management lacks the levers to address strong underlying cost inflation.
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