Citigroup ups Antofagasta to 'buy', highlights strong balance sheet

Citigroup resumed coverage on Antofagasta after a restriction period, upgrading the stock to ‘buy’ from ‘sell’, having been a seller since 2012.

The bank noted the stock has lost around 75% of its value over the past three years and is relatively unique within the mining sector on account of its strong balance sheet, ability to self-fund at spot prices, and pure exposure to a structurally deficit commodity.

“We see ANTO as a ‘trough cycle survivor’ which should appeal to investors despite the risk of a further copper price decline,” it said.

Citi said its commodity analysts forecast a trough copper price in the second quarter of 2016, averaging $4,300/t, while the financial markets appear to be positioned for under $4,000/t.

“In that event, ANTO’s stock price is likely to follow the same direction along with copper exposed equities, but we feel comfortable in the company’s ability to weather any further downturn, supported by a very strong balance sheet. Therefore we are prepared to risk proving slightly early in our buy call.”

Citigroup cut its price target to 440p from 600p.

At 1005 GMT, ANTO shares were up 5.1% to 383.90p.