Jefferies raises Antofagasta and Glencore to 'buy'

Analysts at Jefferies upped their rating on both Antofagasta and Glencore to 'buy' on Tuesday as they took a fresh look at the broader metal and mining industry.

In the case of Antofagasta, Jefferies, which has had a 'hold' rating on its shares due to a premium valuation based on its prior copper price deck and downside risk to its production in 2021, did warn that it expects to see an increase in operating costs after 2020 and an expected increase in capex as the company invests in its organic growth.

However, while the analysts said volumes were "still risky" in 2021 and unit costs and capex was likely to increase, they added that these factors were "more than offset" by Antofagasta's high exposure to copper, as well as the scarcity of copper miners in the FTSE.

"On our new estimates, we value Anto at 1,400.0p per share, which is 23% above Anto's current share price and compares to our prior TP of 1,100.0p per share," said Jefferies.

The analysts also said fears relating to Glencore's ongoing Department of Justice investigation and its operating and geopolitical risks were again easily offset by the group's leverage to a rising copper price.

On the analysts' new estimates, Glencore's copper business accounted for half of its industrials unit's net present value, or 32% of the group's total NPV, and that free cash flow yield for 2021-2023 will average 16% per year.

"This is high enough to justify a 'buy' rating on Glencore shares, and our updated NPV estimate of 244.0p per share also is consistent with a buy-rated stock."