UBS upgrades Anglo American, Antofagasta to 'buy'

On Anglo, it said the risk/reward was attractive after underperformance. It noted the shares are down 40% from the high in January, underperforming Rio Tinto and BHP by around 28% due to weakness in platinum group metals and diamonds, concerns about Woodsmith and ongoing operational challenges.

"We believe the risk/reward is now attractive, with Anglo to benefit from improving copper prices in 2024/25, resilient iron ore and met-coal prices as well as recovering PGM and rough diamond prices," it said.

In 2024, UBS expects the operational performance to gradually improve, and for more than $1bn of working capital to be released. UBS said it also believes the market now ascribes no value to the Woodsmith project.

"Anglo has strong ESG credentials, high quality assets and a strong balance sheet," the bank said.

On Antofagasta, UBS said the bottom-up investment case was at an inflection.

It said Anto has had a challenging two to three years that resulted in guidance downgrades, declining output, significant increases in unit costs and capex for key projects at Los Pelambres lifting materially eroded returns.

"Looking forward, in our view, Anto’s bottom-up investment case is attractive," it said.

"We expect a combination of organic volume growth and unit cost improvement to drive superior earnings growth versus mining peers (diversified and copper pure plays apart from Ivanhoe) in the next three to five years and believe earnings growth (rather than the re-rating/large dividends) will drive attractive returns."

On top of this, UBS said reckons the copper market is also close to a fundamental inflection point and that Anto is one of the few "lower risk" large cap global copper miners that offers leverage to copper price upside.

At 1530 GMT, Anglo was up 7.7% at 2,306p, while Antofagasta was 5.5% higher at 1,486.50p. The sector more broadly was also being boosted by encouraging Chinese manufacturing data.