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Several miners see upgrades on improving commodity prices, better bottom lines


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Several miners see upgrades on improving commodity prices, better bottom lines

Sanford C. Bernstein upgraded its rating on Vale SA to outperform from market perform in a Jan. 25 note, citing the improvement in iron ore prices and the company's low-cost S11D iron ore and rail project in Brazil.

According to Bernstein, Vale is significantly de-risked from both a financial and strategic perspective and is now poised for cash generation and dividend payments after completing its CapEx cycle, capped with the commissioning of the S11D project, which is expected to be the independent driver of the company's margin expansion over the next four years.

The firm also increased its target price for Vale's stock to US$14.20 per share from US$6.07 per share and to 45 Brazilian reais per share from 19 reais per share.

Citigroup also upgraded Vale to buy from its previous neutral rating on the miner, according to a Jan. 23 research report.

Likewise, Teck Resources Ltd. was upgraded by FBR & Co. as the firm raised its forward pricing estimates for metallurgical coal and base metals.

In a Jan. 23 note, FBR & Co. upped Teck's rating to outperform from market perform, with an improved price target of C$38 per share from C$33 per share, primarily driven by a modest increase in FBR & Co.'s 2018 metallurgical coal price estimate and the inclusion of 2017 cash generation to the company's year-end net debt estimate.

Bernstein's revised short- and medium-term price forecasts for iron ore, thermal coal and metallurgical coal also led the firm to increase its price targets for several mining majors, such as Rio Tinto, BHP Billiton Group, Anglo American Plc and Glencore Plc, though their respective ratings were retained.

Going against the tide, Patersons Securities Ltd. said in a Jan. 25 note that metallurgical coal's price rally lacks fundamental support and was only driven by supply constraints in China, which are now unwinding. The firm maintained its sell rating on Whitehaven Coal Ltd. and its A$1.00 fair value estimate for the coal miner.

Alcoa Corp. ranked among the most popular companies for analysts in the week as both Citigroup and Deutsche Bank raised their ratings on the company after it published its results for the quarter that ended Dec. 31, 2016, narrowing its net loss to US$125 million in the period from US$826 million a year ago.

In a Jan. 25 note, Citigroup revised its rating on Alcoa to buy from neutral, with a price target of US$45 per share. Analyst Alex Hacking attributed the upgrade to Alcoa's strong results in the last quarter of 2016 and its improved earnings outlook for 2017, with upside risk if Chinese supply-side reform materializes.

On the same day, Deutsche Bank upgraded Alcoa to hold from sell and assigned a price target of US$30 per share on the company's stock, citing the company guiding 2017 EBITDA of US$2.1 billion to US$2.3 billion, among other considerations.

Citigroup also raised Antofagasta Plc to buy from neutral at a target price of 807 pence per share, sending the miner's shares to their highest level since May 2015.

The bank on Jan. 23 said Antofagasta is expected to improve free cash flow generation over the next three years and is poised to benefit from lower taxes, being exempted from withholding tax on dividend distribution in Chile until 2020.

Meanwhile, analysts at Numis Securities Ltd. cut Fresnillo Plc to hold from buy, though its price target for the miner's stock was increased to 1,500 pence per share.

Numis on Jan. 25 said the company's guidance for a higher effective tax rate in 2016 somewhat offset the positive impacts of its solid fourth-quarter production results, record silver and gold production in 2016, and higher-than-expected output guidance for 2017.

The miner is set to report its 2016 financial results Feb. 28, but Numis expects Fresnillo's EPS to increase to 37 U.S. cents from 35 U.S. cents from the preceding year.

Finally, RBC Capital Markets on Jan. 24 downgraded Silver Lake Resources Ltd. to sector perform from outperform, with a price target of 70 Australian cents per share.

According to RBC, Silver Lake is "no longer inexpensive" and the miner's inclusion to the VanEck Vectors' range of exchange-traded funds eroded the firm's long-standing upside.

Silver Lake's weak results in the quarter that ended Dec. 31, 2016, were also cited and attributed to significant additional spending on new operations and the use of stockpiled materials that are lower in grade and more expensive to process as the company transitions to new ore sources.