Antofagasta PLC (LON:ANTO) shares shot higher after RBC Capital Markets upgraded the stock, saying the valuation provides a “compelling entry point” following a recent sell off.
RBC raised its rating on the FTSE 100-listed group to ‘outperform’ from ‘sector perform’ but cut its target price to 950p from 980p after poor first-half results.
READ: Antofagasta cautions on short-term copper outlook due to trade tensions as first-half earnings drop
Shares in Antofagasta fell following disappointing first half results and weaker copper prices but RBC said the second half suggests better prospects.
“The shares have derated significantly, a rarity for ANTO,” the broker said.
“Valuation provides a compelling entry point in our view. We expect the shares to regain a premium valuation over the coming months possibly enhanced by its copper exposure, which has significantly underperformed iron ore by 10% in the year to date.”
RBC said Antofagasta “checks nearly all of the boxes that we look for in a mining company for long-term investment”, pointing to the company’s “large, long-life and expandable assets in a mining-friendly jurisdiction producing a commodity into a structurally compelling market, at a reasonable margin, with little to no debt”.
The broker added: "The previous ‘invincibility’ in the rating, much like the Ark from Indiana Jones, is likely to return in our view, in due course. We also think this window might be brief, providing investors an opportunity to switch a proverbial bag of sand with the proverbial golden idol of outperformance."
RBC said it remains cautious in the near-term for London miners but thinks Antofagasta’s growth profile and counter-cyclical investment style should help it continue to differentiate.
"With a still robust long-term outlook for copper and a tightening market from 2019, we view purchasing ANTO at below its 10 year average price (890p) with a 2% implied dividend yield at spot as attractive."
Shares gained 2.9% to 828p in morning trading.