Mining update: Glencore, Rio Tinto, Hochschild, Centamin, Fresnillo

Higher commodity prices on hopes of China stimulus and reassuring production updates by Hochschild Mining (LSE:HOC) and Fresnillo (LSE:FRES) put the resources sector on the front foot today.

The FTSE 100 index risers board featured recoveries for Glencore (LSE:GLEN) after its shares hit a one-year low and by Anglo American (LSE:AAL) after the diamond-to-copper giant’s December slump due to a forecast of lower output over the next two years.

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South American gold miner Hochschild led the FTSE 250 as its production update came in towards the top end of previously downgraded guidance and it said its Brazilian project Mara Rosa is 98% complete and on track for its first gold pour in February.

Centamin (LSE:CEY) was close behind, rising 5.6p to 98.7p after correcting December’s estimate of proven reserves at its Sukari underground mine to a higher figure.

Meanwhile, broker Peel Hunt backed the Egypt-focused Centamin with an unchanged price target of 130p after increasing its earnings estimate for this year by 13%.

For FTSE 100-listed gold and silver miner Fresnillo, the shares rallied off recent multi-year lows after it reiterated production guidance for the current year.

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One of the next big events in the industry calendar is the 1 February production update of Glencore, which is followed by the company’s annual results on 21 February.

Shares are down by more than 10% this year, not helped by the trend in nickel and cobalt prices and a fall back for thermal coal due to a robust winter in Europe’s energy market.

The weaker sentiment is also likely to reflect uncertainty caused by November’s proposed acquisition of a 77% interest in the steelmaking business of Canada’s Teck Resources (TSE:TECK.A).

Deutsche Bank recently removed its “buy” recommendation due to near-term earnings headwinds as it warned returns in 2024 may be limited to just the base dividend. The shares were 550p a year ago but dipped below 400p earlier this week.

Liberum, which has a “Hold” recommendation and 460p target price, warns the greening of both the power and steelmaking sectors are bear factors for thermal and metallurgical coal.

It adds that a bullish outlook for commodities in 2024 will depend on a clear shift in the macro backdrop after factors such as China’s waning growth, US interest rate rises and geopolitical conflict impacted prices across many markets in 2023.

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Despite this morning’s stronger session for many metal prices, the bank’s commodities team questions how much of an impact China’s latest attempts to support the world’s second-largest economy will have.

They wrote: “Investors now realise that China’s key commodity-consuming sectors – property and infrastructure – are now so thoroughly built out, that any credit-backed bounce would only cause resource misallocation.

“Instead, the central government seeks to stabilise and possibly improve the quality of growth. This structural shift is inherently bearish for commodities. It follows that whatever drives commodity demand growth from here is probably not China-related.

“We look to the US infrastructure rebuild program as the next big thing. And yes, it may receive some demand support from odd quarters, like major economies seeking ‘critical minerals’ and, hopefully, an end to demand-crippling conflict.”

The bank’s most preferred stocks include Rio Tinto, which it backs with a target price of 5,800p, and Anglo American with an upside to 2,000p.