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Deutsche Bank upgrades 7 miners on improved fundamentals, metals outlook

The Research Roundup highlights some of the more noteworthy analyst views making waves in the international metals & mining space.

Deutsche Bank AG opened the week to Oct. 7 with a series of upgrades on Oct. 3, raising its ratings on Barrick Gold Corp., Freeport-McMoRan Inc., Pan American Silver Corp., Teck Resources Ltd., Coeur Mining Inc., Goldcorp Inc. and AK Steel Holding Corp.

Ratings for Barrick, Freeport and Pan American were lifted from hold to buy, while the target price for Freeport stock rose to US$12.50 per share from US$12.00 per share and the target price for Pan American shares rose to US$20.00 per share from US$14.50 per share.

Meanwhile, the bank's sell rating on Teck Resources, Coeur Mining, Goldcorp and AK Steel were upgraded to hold. Deutsche Bank also increased its target prices to US$20.00 per share from US$11.50 per share for Teck Resources, to US$11.00 per share from US$7.50 per share for Coeur Mining, to US$16.00 per share from US$15.00 per share for Goldcorp and to US$4.83 per share from US$1.64 per share for AK Steel.

The upgrades come on the back of the bank's improved outlook on metals, particularly gold, with Deutsche Bank analysts noting the seven companies' share price movement, operational delivery, better cash flow and balance sheet improvement.

Deutsche Bank said it is now generally neutral toward the sector, with 12 buy and 13 hold ratings on mining companies, but recommended defensive positioning to investors through exposure to precious metals equities given possible market volatility as the year ends.

Jorge Beristain, an analyst at Deutsche Bank, warned that rising metal prices may not be sustained, as most commodities still need significant supply cuts, noting a risk flagged by Deutsche Bank's chief China economist that China's property bubble may burst in 2018 and put downward pressure on global commodities.

Barrick and Newmont Mining Corp. were named as the bank's top picks in the precious metals sector, while also highlighting Alcoa Inc. and Kaiser Aluminum Corp. for aluminum and Steel Dynamics Inc. in the steel sector.

S&P Global Ratings also upgraded a miner on Oct. 5, raising its long-term corporate credit rating on manganese ore miner Consolidated Minerals Ltd. to CCC+ from SD, with a negative outlook.

The upgrade follows the company's announcement that its noteholders approved the deferral of a part of the 2016 and 2017 coupon payments on the company's notes due 2020, moderately increasing the miner's liquidity headroom along with recovering manganese ore spot prices.

However, S&P Global Ratings noted that Consolidated Minerals remains highly dependent on favorable market movements in the coming quarters to meet its financial obligations, and that the negative outlook means the company's ratings could be downgraded if the increasing manganese ore spot prices are not sustained and if lower prices weigh on its liquidity in 2017.

Meanwhile, Somers & Partners initiated coverage on Panoramic Resources Ltd., giving the company a buy rating and a target price of 48 Australian cents per share.

In an Oct. 5 note, Somers said it is "a good time to look at the Australian nickel sector," with the market reportedly in deficit this year as supplies dwindle and are threatened by mine closures in the Philippines, which is a major nickel exporter.

According to the firm, Panoramic shows strong leverage to rising nickel prices through its flagship Savannah nickel mine in Western Australia and takes advantage of the current favorable Australian gold price and cost environments with the planned IPO of its Gum Creek gold assets in the same state.

Somers also initiated coverage on Lucapa Diamond Co. Ltd., giving the company a speculative buy rating and a target price of 60 Australian cents per share in an Oct. 6 note.

The analysts said Lucapa looks undervalued by the market and highlighted the company's 40%-owned Lulo diamond mine in Angola, which hosts "an unusually high proportion of large 'special' diamonds."

Apart from Lulo's rare diamonds, the analysts also noted the property's exploration upside as Lucapa continues to hunt for the kimberlite source as well as the potential to recover more special diamonds from the mine with improvements at the processing plant.

Finally, Moody's also started covering United Co. RUSAL Plc, assigning a corporate family rating of Ba3 with a stable outlook.

Moody's said in an Oct. 7 note that its rating incorporates the company's position as the second-largest aluminum producer globally and the top producer in Russia, as well as its low production costs, long-term contracts with affiliated power plants and geographically diverse assets and sales, among other factors.

The rating firm's stable outlook reflects its expectation that RUSAL will reduce its Moody's-adjusted debt/EBITDA over the next 12 to 18 months, continue to generate positive free cash flow, maintain healthy liquidity and pursue a conservative financial policy.

S&P Global Ratings and SNL Metals and Mining, an offering of S&P Global Market Intelligence, are both owned by S&P Global Inc.