Berenberg advised investors to ‘buy’ Anglo American as the broker published an upbeat view of the sector’s long-term prospects and potential to pay dividends.
Initiating its coverage of three big miners, Berenberg also gave Rio Tinto and BHP ‘hold’ ratings. The broker slapped a £28 price target on Anglo American, a £60 target on Rio Tinto and £20 on BHP.
Berenberg said diversified miners would be supported by three megatrends:
Demographics including urbanisation, transport and middle class growth trends
Climate activism including decarbonisation, clean energy and resource constraints
Technology such as electrification, the internet of things and the circular economy.
“All these trends require metal input to varying degrees, creating significant upside in the case of commodities such as nickel, copper, cobalt and lithium, supported by a declining long-term production profile due to lack of major investment in new projects,” Berenberg analyst Richard Hatch wrote in a note to clients.
“We therefore think that the diversified mining universe is well placed to benefit from increased and changing commodity demand in a world being forced to change its ways through government commitments (eg to the Paris Agreement).”
Hatch said investors should “watch the froth” in the near term after share prices rallied on stimulus sentiment, the Democrats’ election win in the US and dollar weakness. With few compelling supply-demand scenarios some of this froth will come off, he said.
Hatch said diversified miners should be seen as “lean, mean dividend machines” that were “chastised” by near-ruin in 2015. After strengthening balance sheets and cutting costs the miners are generally wary of big capital spending and will continue to pay strong dividends, Hatch said.
