Fresnillo and Antofagasta shares were given a double boost today by China’s better than hoped GDP numbers and a ratings upgrade by UBS.
Shares in Fresnillo advanced 2.6% while Antofagasta rose 2.1%.
The Swiss bank has moved Fresnillo to neutral from sell and upped its price target to 825p per share from 700p per share.
The broker explained it downgraded the firm to sell in January as it believed consensus for financial year 2022 costs were too low and it saw downside risks to 2023 production guidance.
But now it thinks these negative catalysts have largely played out and with the stock down more than 20% over last three months and underperforming the gold price/GDX index by over 25% the risk vs reward is more balanced.
Although it thinks operational performance and expectations may have bottomed out it still believes consensus for 2023 costs looks too low.
On Antofagasta, UBS believes the bottom-up investment case is improving.
It upgraded its rating to neutral from sell and increased its price target to 1650p from 1200p.
Although the company trades at a premium to UK diversified mining peers its EV/EBITDA & dividend yield is comparable to key global copper peers, the broker explained.
Whilst the firm is likely to generate limited free cash flow (FCF) in the next 2-3yrs due to high capex associated with the Centinela expansion project, UBS thinks investors predominantly hold copper stocks for leverage to the copper price/growth rather than FCF/cash returns.
“We do not see an obvious catalyst for a de-rating and believe improving political backdrop in Chile combined with low risk organic growth could drive a re-rating medium-term,” the Swiss bank said.