Ahead of results next week, UBS has taken a contrarian stance on two major miners, backing Antofagasta PLC (LSE:ANTO) over Rio Tinto Ltd (LSE:RIO, ASX:RIO, OTC:RTNTF) despite broader market preference for the latter.
Final results for Antofagasta are in the diary for Tuesday 18 February, with those for Rio a day later.
While most analysts favour Rio due to its iron ore dominance, UBS believes Antofagasta’s copper exposure offers a stronger long-term growth story.
The bank has issued a ‘buy’ rating on Antofagasta, citing the structural re-rating of copper stocks driven by electrification and the green energy transition.
It argues that the company’s valuation should be benchmarked against global copper producers rather than European miners.
It acknowledges that Antofagasta’s stock appears expensive based on traditional metrics but justifies its stance by pointing to the company's significant organic growth potential.
Antofagasta is investing heavily in expanding its Centinela mine, a $4.4 billion project that should increase its copper production by around 35% between 2024 and 2029.
UBS recognises the risks of cost overruns but highlights that the project is progressing on schedule. The bank expects Antofagasta to turn free cash flow positive by 2026, following a period of heavy capital expenditure.
On the other hand, it maintains a ‘neutral’ rating on Rio. While acknowledging that the company offers some earnings growth, particularly through its copper and lithium investments, the bank notes that iron ore will still account for around half of Rio Tinto’s earnings by 2030.
Given the muted outlook for iron ore prices, UBS sees limited scope for Rio Tinto’s valuation to re-rate significantly in the next two years.
In afternoon trading, Antofagasta shares were 1.5% higher at 1,826p.