Citigroup has been looking a bit more kindly on the mining sector, posting upgrades to two stocks: BHP Billion PLC (LON:BLT) and South32 Ltd (LON:S32).
The former has been sold off on concerns over a sluggish pick-up in Chinese economic activity since the Chinese New Year, with threats of a trade war not helping matters.
READ: BHP Billiton extends fall after disappointing first-half results as two heavyweight brokers downgrade
Citi, while recognising the risk of escalation, does not see increased protectionism as a major impediment to global growth.
Specific to BHP, it thinks the share price could receive a boost when the company gets shot of its US shale assets; recent transactions suggest the resources giant might get more for them than the market has been expecting.
US Permian Basin player Concho recently announced the proposed acquisition of RSP Permian for an enterprise value of US$9.5bn.
Applying the same sort of methodology to BHP’s shale assets would lift Citi’s valuation of the assets from US$10bn to US$14bn.
Citi has abandoned its neutral stance on BHP and upgraded to ‘buy’, with a 1,550p price target.
South32, meanwhile, has been upgraded to ‘neutral’ from ‘sell’, reversing a rating change made by Citi barely two months ago.
When Citi downgraded to sell back in early February, it was concerned about the effect of a rising rand on costs and also by the outlook for manganese prices in 2018.
“Whilst the cost risk played out at the interim FY18 result through increased cost guidance, manganese prices have remained strong and present a significant upside risk to our estimates if maintained,” the US banking giant said.
Citi has a target price of 180p.
Shares in South32 were up 2p at 179.3p in lunchtime trading.