Miner unearths double ratings upgrade as rivals sink deeper
ANTOFAGASTA yesterday became a rarity in a sector plagued by stretched balance sheets after it received a double rating upgrade.
The FTSE 100 stock spent much of the trading session at the top of the blue-chip index before easing back in afternoon trade. It closed up 6.8p, or 1.9pc, on the day at 372.2p.
Citigroup had a change of heart when it upgraded the stock by two notches to “buy” from “sell” – a rating it had held for three years. Although the stock has lost 75pc of its value since 2012, the investment bank believes the mining giant has “relative scarcity” within the sector, given its strong balance sheet and ability to self-fund at current commodity prices.
Jatinder Goel, of Citigroup, said: “We see Antofagasta as a ‘trough cycle survivor’, which should appeal to investors despite the risk of a further copper price decline.”
Citigroup is confident in Antofagasta’s ability to “weather any further downturn” due to its costcompetitive operations.
A number of companies in the sector are facing solvency issues, credit rating downgrades, impairments and refinancing issues.
However, Citigroup noted that Antofagasta is one of the most shorted stocks in the sector, despite its robust balance sheet.
Rival BHP Billiton failed to hold on to its gains yesterday despite a bearish note from Liberum. The broker warned that the FTSE 100 miner will not be able to “realistically retain” its “solid A” credit rating at current commodity prices, even if it were to cut its dividend to zero and slash capital expenditure.
Richard Knights, of Liberum, warned: “Given the company continues to be married to the idea of a ‘solid A’ rating throughout the cycle, a rights issue looks likely.”
The bearish note was issued as Moody’s placed dozens of mining companies around the world on review for a credit downgrade, in response to the collapse in commodity prices and slowing growth in China.
The credit ratings agency said its review would also incorporate companies that had been under scrutiny previously, including Anglo
American and BHP Billiton. Shares in BHP Billiton tumbled 1pc to 648.9p. Anglo American lost 8.6pc to 226.7p, Glencore slipped 4.5pc to 78.6p and Rio Tinto shed 1.1pc to £16.54.
On the broader market, the FTSE 100 rallied 126.22 points, or 2.19pc, to close at 5,900.01, buoyed by a jump in commodity-related stocks.
Brent crude rallied by as much as 8.6pc to $31.76 a barrel in intraday trade, amid hints of more monetary easing by the European Central Bank.
Oil majors extended their gains as a result, with BG
Group 5.1pc higher at 980.2p, Royal Dutch Shell
B shares up 5.3pc to £13.88 and BP 3.1pc better off at 352.7p. On the mid-cap index, Tullow Oil leapt 14.4pc to 147.8p.
Elsewhere, Sports Direct topped the FTSE 100 leaderboard – up 24.2p, or 6.1pc, to 422p – despite a move by Exane BNP Paribas to slash its target price by 33pc to 500p. Investors appear to doubt the quality of the UK business, said Graham Renwick, of Exane BNP Paribas.
Finally, digital medicine developer Aliki, part of the
PureTech Health group, raised $30.5m in new equity to advance its treatment technology for attention deficit hyperactivity disorder (ADHD). None the less, shares in PureTech Health ended the day flat.