Berenberg downgrades Anglo American, Rio Tinto

Berenberg downgraded Anglo American and Rio Tinto on Thursday as it took a look at metals and mining companies.

Anglo was cut to ‘sell’ from ‘hold’ and the price target reduced to 2,000p from 3,000p on the bank’s expectation that the reality of executing the company’s new plan disappoints the market.

It noted that on 29 May, Anglo rejected a request for another extension of the ‘put up or shut up’ (PUSU) deadline following three unsuccessful bids for the company by BHP and an extension of the PUSU deadline by a week.

"Consequently, BHP stepped away from its bid and Anglo survives to fight another day," it said.

"However, Anglo now needs to execute its new strategy flawlessly, in our view, having rejected a final bid priced at 3,111p per share; the shares closed on 26 June at 2,528p, or a 19% discount to the final BHP bid price.

"In our view, while the BHP proposal had its structural challenges, solutions were possible, we think, and we struggle to see how Anglo’s new strategy can deliver value comparable to the final BHP bid.

"The failure of Anglo shares to rally towards the final bid price reflects the market’s concern that it will not deliver this value, we think."

Berenberg also downgraded its stance on Rio Tinto, to ‘hold’ from ‘buy’ and cut the price target to 5,800p from 5,900p.

The bank said its downgrade was prompted by a more cautious view on China and iron ore. It also noted that Rio’s lack of action in terms of growth, while conservative, means Berenberg thinks it could have missed some good opportunities to secure attractive growth at better valuations. It said the main commodity it thinks it should have been more active on here is lithium.

"Aside from this, the company is steadily growing copper volumes and is progressing the Simandou iron ore project in Guinea," it said.

Berenberg maintained its ‘hold’ rating on BHP and said it thinks the company will need to increase investment in projects such as Copper South Australia and Escondida to both grow and stabilise its copper production.