Xstrata vs Kazakhmys: the hunt for value in battered copper miners
UK-listed copper miners have seen their share prices slump in recent weeks on mounting fears over global growth, prompting brokers to point to potential value among the stocks – even as the world economy sputters.
Analysts at Credit Suisse pointed out that Chilean miner Antofagasta ( ANTO.L ) has significantly outperformed its rivals in the past few months.
Writing in a research note, they noted that with no recent company-specific catalysts, and exposure to the same industry drivers, the stock is ‘clearly pricing in a stronger cycle than [its] peers.’ The analysts see better relative value in Xstrata ( XTA.L ) and Kazakhmys ( KAZ.L ).
Antofagasta has certainly had a better run of late than these two rivals: the stock has only shed 15% of its value in the past month, while they tanked 31%. The FTSE 100 index, of which the miners are all constituents, lost 14% over the same period.
In their note, the Credit Suisse analysts said that should markets see a ‘risk bounce,’ they would expect Xstrata and Kazakhmys to outperform Antofagasta, given its recent performance and current valuations. Base metals, such as copper, would likely outperform bulks – low-grade ores – under this scenario, they said.
But in the event of developed economies stalling , with China riding to the rescue in terms of demand, the analysts said base metals could come under greater pressure in light of their high correlation with global growth trends. In this instance, they prefer Xstrata due to its diversification through coal exposure.
And should the United States and Europe slide back into recession, they continued, all commodities and risk assets would come under pressure – but bulk metals would form ‘relative areas of safety.’
Under this scenario, their preference would be for large-cap miners with bulk exposure, such as Rio Tinto ( RIO.L ) and Xstrata. The analysts pointed out that Antofagasta had the greatest direct exposure to copper, and at current prices, the greatest downside earnings risk.
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