RBC Capital downgrades Anglo American to 'outperform'

The bank, which slashed its price target on Anglo to 2,300p from 3,000p, said the converter failure in PGMs and associated working capital build comes at the worst possible time, as PGM cash flows were driving "clear defensive differentiation".

"With COVID-19 cutting our De Beers forecasts, the outlook for 2020 has deteriorated rapidly. Economically, the PGM outage should be relatively neutral medium term, but Anglo will be dealing with these impacts into 2022E," it said.

Anglo announced on Friday that it had declared force majeure and cut production guidance as it shut down its converter plant for 80 days after an explosion and backup failure.

"Although this will only result in the deferral of ounces, leaving the economic impact modest, this, and more diamond inventory, will result in a net RBCe circa $2.7bn working build for 2020 and will take until 2022 to fully unwind," RBC said.

"With uncertainty building from the COVID-19 impacts on autos, a normal price response may not eventuate despite this being a 3% loss of global palladium supply (6% of platinum)."

RBC also said that Anglo’s acquisition of Sirius Minerals for £405m will dent cash flow.

"Nonetheless, AAL still screens as attractive on our base case. Although net debt moves up near term, the compelling valuation, attractive growth and still fundamentally sound balance sheet, with further operational and technological gains to be achieved, leaves Anglo still providing plenty of attraction for long-term investors, in our view."

At 1530 GMT, the shares were down 10% at 1,507.60p in a sharply lower London market.