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Bernstein revises commodity price forecasts, price targets for mining majors

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

Bernstein Research issued a note Sept. 20 to detail target price revisions for mining heavyweights, prompted by the firm's new commodity price forecasts, through ratings remain unchanged.

Bernstein raised its target price for Rio Tinto's stock to 3,500 pence per share from 2,520 pence per share, with an upside of 52%, and maintained its outperform rating on the miner, noting its strong balance sheet and healthy margins.

The target price for BHP Billiton Group's stock also increased, to 1,250 pence per share from 790 pence per share, with a 25% upside. Bernstein reiterated its market perform rating on the company but noted that, though it is well positioned if commodity prices recover, BHP Billiton's oil business poses serious risks to its profitability at current prices.

With an outperform rating, Glencore Plc stock was given a target price of 300 pence per share, up from 250 pence per share, with an upside of 64%. Impressed with the miner's balance sheet, Bernstein emphasized that Glencore is using streaming deals in its deleveraging plan, unlike other companies that focus on selling assets. The research firm also noted that Glencore's stock price has more than doubled so far this year.

Meanwhile, Bernstein raised its target price for Anglo American Plc's stock to 1,250 pence per share from 1,010 pence per share, with a 54% upside, and retained its outperform rating on the company, saying the quality of Anglo American's portfolio is not being reflected in its stock price, despite the shares' recent rally.

First Quantum Minerals Ltd.'s rating was also unchanged at outperform, with a higher target price for its stock, at C$18 per share from C$13.90 per share, and a 73% upside. With copper as its preferred commodity, Bernstein said First Quantum is one of its top picks, referring to the company as a "copper pure play, with a twist of nickel."

According to the research firm, First Quantum is among the very few companies that offer significant growth in copper production in the coming years, expecting the miner to increase output by 120% to about 950,000 tonnes of copper in 2020, from 427,000 tonnes in 2015.

Like First Quantum, Antofagasta Plc is also expected to benefit from the expected upside in copper price, given the company's pure copper exposure. Bernstein considers Antofagasta as one of the "safest" copper stocks available, with low debt levels and strong returns despite a low price environment.

Antofagasta's outperform rating was reiterated, and the target price for its stock was lowered to 600 pence per share from 610 per share, with a 29% upside.

Bernstein's target price for South32 Ltd.'s stock rose to 125 pence per share from 50 pence per share, with a 2% downside, but the rating remains at market perform. The firm said South32 has almost no organic growth in its portfolio but was set up for acquisition transactions with a strong balance sheet upon branching out from BHP Billiton.

Finally, Vale SA's rating was retained at market perform, though the target price for its stock increased to 19 Brazilian reais per share from 13.80 reais per share, with a 14% upside. According to Bernstein, Rio Tinto is a better investment in terms of iron ore, given that Vale is a higher-cost producer and has repeatedly flagged the issue of depletion from its mines.

The target price revisions are primarily related to Bernstein's new commodity price forecasts, setting long-term price targets of US$8,200 per tonne for copper, US$18,500 per tonne for nickel, US$2,700 per tonne for zinc, US$2,100 per tonne for aluminum, US$66 per tonne for CFR iron ore, US$83 per tonne for FOB thermal coal, US$125 per tonne for FOB metallurgical coal and US$1,286 per ounce for platinum.

While Bernstein remains optimistic on copper, a report from Moody's said South African base metals miners are facing a slow recovery, as challenging market conditions are expected to continue through 2018 and are "unlikely to improve meaningfully."

In contrast to the base metals sector, Moody's said Sept. 20 that the country's gold and diamond miners will continue to strengthen their credit quality, after adjusting operations to prevailing price conditions.

According to the rating firm, AngloGold Ashanti Ltd., Gold Fields Ltd. and Petra Diamonds Ltd. are expected to improve their credit metrics, with increasing EBITDA and lower debt levels.

In a separate Sept. 22 note, Moody's placed Alcoa Inc.'s Ba1 corporate family rating under review for a downgrade, as the firm expects the company to have weaker debt protection metrics and increased leverage after its planned business split into two publicly traded companies.

On Sept. 23, Moody's also warned that the announced merger of Baosteel Group Corp.'s Baoshan Iron & Steel Co. Ltd. unit with Wuhan Iron & Steel Co. Ltd. is credit negative and will pressure Baosteel's ratings as Wuhan's weaker operation and financial position are foreseen to weaken Baosteel's financial capacity.

Meanwhile, S&P Global Ratings improved the ratings of 17 Russian companies on Sept. 20, after a recent boost to the country's sovereign credit rating, but excluded miners PJSC MMC Norilsk Nickel and PJSC PhosAgro due to continuing concerns over low commodity prices and higher debt levels at both companies.

S&P Global Ratings also lifted its outlook on PAO Severstal and OJSC Novolipetsk Steel from "negative" to "stable" and retained its "BBB-" rating for both steelmakers as a result of the sovereign rating upgrade.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.