Mining sector outlook and stock tips for 2025
With a new US president and ongoing uncertainty in China, 2025 will be another interesting one for the mining industry. Graeme Evans reveals what the City expects next year.
10th December 2024 13:59
by Graeme Evans from interactive investor
Anglo American (LSE:AAL) and Glencore (LSE:GLEN) are among Buy recommendations after two City banks sought to look through uncertainty caused by Donald Trump’s imminent White House arrival.
Fears that Trump’s proposed tariffs will mean lower global growth and lead to headwinds through a stronger US dollar have impacted commodity sector valuations since November.
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There’s also considerable uncertainty over the magnitude of China stimulus in the Year of the Snake, which begins on 29 January.
The mixed outlook was shown by this week's fluctuations for Rio Tinto Registered Shares (LSE:RIO) and other mining stocks after China’s Politburo signalled “moderately loose” monetary policy in 2025, only for this morning’s export figures to dash the optimism.
In its 2025 outlook for the mining sector, UBS told clients that it's too early to turn positive on all industrial metals.
Instead, it prefers commodities with compelling supply dynamics and where demand is supported by the energy transition, such as copper and aluminium.
The bank said: “A less favourable macro backdrop is not typically bullish for 'Dr Copper'; however, we remain constructive and expect the physical market to be tighter in 2025 due to supply constraints and demand holding up (not accelerating).
As a result, the bank believes Anglo American continues to offer attractive risk-reward.
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This is enhanced by the potential for a further re-rating once the expected second quarter spin-off of its platinum operations leaves Anglo as a predominately copper stock.
The bank also backs Antofagasta (LSE:ANTO), despite this year’s disappointing operational performance. The support is based on guidance for 2025 and progress on key growth projects, while the company’s Chile operations are seen offering lower country risk.
Despite remaining at near record levels, UBS expects the gold price to be supported by lower US real rates, heightened geopolitical uncertainty and increasing allocations by central banks. Its preferred small cap stock in the space is FTSE 250-listed Hochschild Mining (LSE:HOC).
The bank forecasts a range-bound performance for thermal coal but with a more constructive outlook for metallurgical coal due to robust demand from India and limited supply growth.
That underpins its support for Glencore, which the bank also likes for the additional benefit of the diversified miner’s superior near-term cash returns versus Rio Tinto and BHP Group Ltd (LSE:BHP).
The Glencore target price stands at 520p, while the bank sees Anglo American rising to 3,000p, Antofagasta to 2,200p and Hochschild Mining to 300p.
It is Neutral on Rio Tinto and BHP, whereas counterparts at Bank of America have Buy recommendations on both these stocks as well as Glencore, Anglo American and Antofagasta.
The US bank’s year ahead document flags the potential for first-quarter volatility as Trump’s policy moves and reactions in China play out.
Despite this, it maintains a medium-term bullish view on copper, aluminium, uranium and gold.
BofA said: “Many metals were resilient in 2024 despite growth concerns. At about 50% of demand for most mined commodities, China looms large in our thinking. Property concerns persist but metal demand from new uses is surprisingly up.”
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The bank’s three bottom-up ideas are Anglo American for its potential to release value through restructuring, as well as ArcelorMittal SA New Reg.Shs ex-Arcelor (EURONEXT:MT) and the FTSE 100-listed Endeavour Mining (LSE:EDV), which it likes for its gold volume growth and free cash flow.
It said: “We are bullish gold, calling it to $3000 an ounce. Endeavour is a gold miner with a track record of delivering projects on time and on budget. Two recently built projects are ramping up now, which sets up capital return.”
The report also highlighted the role of artificial intelligence (AI) in helping miners to deliver the metals required for the energy transition, such as copper, lithium, rare earths and nickel.
It said: “Exploration is technically challenging, expensive and risky; historically it has a low 'hit' rate with only one target out of 1,000 delivering a potentially economic deposit.
“By applying AI to early stage target identification, and exploration processes, innovators are trying to improve these odds. AI could change the rules on mineral exploration and change the risk-return equation for this part of the value creation chain.”
It is early days, but the bank said applying AI to exploration had already yielded results after the discovery of a high-grade copper deposit in Zambia.
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