Forecasts of a golden future for miners

Commodities have already boomed this year but this City bank says demand for energy security plus decarbonisation pressures mean there’s further to go. Our City analyst reports.

‘Buy’ recommendations on Anglo American (LSE:AAL) and Glencore (LSE:GLEN) were today retained by a major City bank as it suggested investors “hang on for the ride”, despite shares rising 30% this year.

Amid high levels of uncertainty, Deutsche Bank sees the benefit of maintaining exposure to the mining and metals sector given the challenges facing supply in the short and longer term.

It continues to have ‘hold’ recommendations on Rio Tinto (LSE:RIO), Antofagasta (LSE:ANTO) and BHP (LSE:BHP), but today nudged up its price targets on all three stocks.

However, Deutsche Bank believes there’s further to go for Glencore and Anglo American, even though the pair were the top-performing stocks in the FTSE 100 index in the first quarter of 2022 after gains of 33% and 32% respectively.

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Their momentum came as the CRB Index, which comprises a basket of 19 commodities, rose 27% in the first quarter of 2022 and by 9.7% in March.

This followed an unprecedented supply shock from the Russia-Ukraine war, given the importance of both countries to the supply of energy, metals and soft commodities, on top of the disruption and supply chain dislocations seen since the onset of Covid in 2020.

Deutsche Bank’s central case on the sector remains a relatively short Ukraine conflict, slower global growth but no recession, and a recovery in commodity demand levels in China in the second half of this year.

The bank says: “We expect tight physical conditions to persist but for some price moderation by year end as international trade flows adjust.”

De Beers owner Anglo American has been raised from 4,100p to 4,300p, while the price target on Glencore has gone up from 580p to 590p. Glencore shares were today at 513.4p, having recently benefited from its exposure to rising coal prices and a strong position on transition metals such as copper and zinc that will be central to decarbonisation efforts.

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A quarter of Glencore’s 2021 earnings came from coal, which until recently had been valued on low multiples due to environmental and demand concerns. But with Russia accounting for about 16% of global thermal and coking exports, coal futures topped $400 a tonne at one point in early March, compared with just above $200 prior to the Ukraine invasion.

Beyond near-term supply disruptions, Deutsche Bank notes that a drive for energy and resource security could lead to an increase in the strategic value of the global mining sector.

It adds: “Alongside sustained underinvestment in new capacity and demand growth from decarbonisation, this paints a structurally bullish outlook, in our view.”

Anglo American is a leading producer of platinum group metals, which are essential for cleaning vehicle exhaust emissions and as the catalyst in electric fuel cell technology. Its portfolio also includes metallurgical coal, iron ore, copper and nickel.