Citi has downgraded its stance on mining group Eurasian Natural Resources (LON:ENRC) to ‘neutral’ from ‘buy’ due to the lack of near-term catalysts before its strategy update in October.
Citi analyst Thomas O’Hara has also reduced his target price for ENRC to 400 pence per share from 570 pence - which still represents a premium to yesterday’s closing price of 370.2 pence – on the back of its earnings downgrade.
“We believe the long-term value uplift story has weakened, possibly only temporarily, but sufficiently for us to remove our Buy rating,” said analyst Thomas O’Hara.
“Until we get further clarity on the group’s growth strategy then we see limited catalysts for the stock, as it faces rising costs, creeping debt and negative earnings momentum.”
Earnings forecasts for this year and 2013 were slashed by 12 and 15 percent to 68 US cents and 81 cents respectively, reflecting lower iron ore prices, higher costs in the copper division and higher than expected debt.
According to O’Hara, debt, which currently stands at US$3.4 billion – above the consensus projection of US$2.9 billion 0- is likely to increase further by the end of the year due to further cash payments including US$101.5 million for the Frontier mining licence.
However, he disagreed with the view that ENRC could need a rights issue to shore up its balance sheet. The analyst noted that the group has undrawn credit facilities of US$1.5 billion and a further US$1.5 billion in the bank, which should cover the remaining third of its US$2.3 billion capex.