Interactive Investor

Three mining stocks to buy for 2024

Some of the biggest UK-listed mining companies have lagged the wider stock market in 2023, but they’ve done better in recent weeks and this expert believes they could carry that momentum into next year.

23rd November 2023 13:58

by Graeme Evans from interactive investor

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Buy recommendations for Glencore (LSE:GLEN), Rio Tinto Registered Shares (LSE:RIO) and Anglo American (LSE:AAL) today reflected a City bank’s optimism the miners will see a demand recovery from the second half of 2024.

Rio Tinto is Deutsche Bank’s top pick among the iron ore majors with a 6,000p price target, while Glencore is seen as a medium-term re-rating story based on a 560p estimate.

Anglo American, whose interests include copper, platinum group metals, De Beers diamonds and the Woodsmith polyhalite fertiliser mine project in North Yorkshire, has been the laggard of the sector this year due to high capital expenditure and weakening prices.

However, the bank today switched its recommendation to “buy” in the hope that self-help measures and a cyclical upturn can drive a powerful cash flow recovery.

The bank has a target price of 3,000p, representing a potential 33% rebound for shares.

One of the self-help levers is streamlining Anglo’s “complex” portfolio, which Deutsche Bank believes is impacting the valuation multiple and diluting the world class copper business.

On a divisional basis, the bank regards the operations in nickel and manganese, De Beers and crop nutrients as potential candidates for divestiture or syndication. Anglo is due to deliver an investor update on 8 December.

This year has been a tough one for Europe’s metals and mining sector, which has underperformed broader markets by 10-20% as 2021’s record cash flows and dividends have given way to sub-trend global demand and rising industry debt levels.

The bank’s house view is for the cyclical weakness to extend into the first half of 2024 as the lagged effect of inflation and interest rate hikes lead to a potential mild US recession and stagnant growth in Europe.

While there are risks of financial stress due to the rapid increase in interest rates, the bank’s analysts believe stagnant growth is currently largely priced into metals and mining shares.

An end to destocking and a subsequent recovery in demand should then lead to a fairly rapid tightening in key markets, particularly given low inventories and inelastic supply.

It now expects broadly-balanced markets in 2024 for copper, aluminium and iron ore, but for deficits to re-emerge from 2025 as the global demand cycle recovers.

By the end of 2024 and heading into 2025, the bank forecasts copper and aluminium 20% above current spot levels at $10,000 and $2,600 a tonne respectively.

The bank said: “Structurally, we still see undersupply as a key bullish underpin to the sector.”

The top pick plus buy case for Glencore

Despite steel production edging down in China in recent weeks, the bank expects iron ore to remain well supported in a largely balanced market in 2024 and 2025.

This underpins its support for Rio Tinto, which it favours on both value and quality grounds.

As well as optimism on iron ore prices, it believes that Rio shares fail to reflect the development of the Oyu Tolgoi (OT) project in the South Gobi region of Mongolia, one of the largest known copper and gold deposits in the world.

The bank said: “The OT copper project is rapidly de-risking, and it will become a major cash flow kicker from late 2024. The mine represents a key source of growth and valuation upside potential.”

The backing for Glencore follows this month’s proposed $6.9 billion (£5.6 billion) acquisition of a 77% interest in the steelmaking coal business of Canada’s Teck Resources.

The deal raises the prospect of a value-enhancing break-up of Glencore through a separate New York listing for its thermal coal assets and those bought from Teck.

The demerger of the combined coal business is expected 12-24 months after the close of the acquisition, which itself is not expected until the third quarter of next year. The timeline is also dependent on sufficient deleveraging of the Glencore balance sheet.

Deutsche Bank describes the acquisition as a “good, accretive deal for Glencore” but warns there are uncertainties to navigate. These include the timing of the demerger and willingness of investors to own Glencore ahead of the demerger, given that exposure to coal earnings will potentially increase to more than 40%.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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