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JP Morgan thinks London’s miners are looking “cheap” right now, but downgrades Glencore on US probe fears

Analysts at the ‘bulge bracket’ bank expect demand from China to pick up over the coming months, while miners’ valuations look cheap when compared with the same stage of previous cycles

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Glencore is under investigation by US authorities

JP Morgan has upgraded mining giant Rio Tinto PLC (LON:RIO) to ‘overweight’, claiming that the sector as a whole looks “cheap” right now.

Analysts at the heavyweight US investment bank, who upped their price target to 4,950p (from 4,850p) as well, also argued that demand from China, the world’s largest consumer of raw materials, is set to rise once again in the coming months.

Resurgent China

“Commodities Research estimate China’s infrastructure boost could result in ~1.3Mt of new copper demand in H2,” read a note to clients on Monday.

“We expect robust iron ore demand as China steel output accelerates from trough in Q4, which may be amplified by capacity shutdowns from Nov-Mar that incentivise steel producers to re-stock premium seaborne iron ore.”

The JP Morgan number crunchers added that UK miners are trading at “depressed mid-cycle or recession multiples”, despite seemingly being on an upswing.

“We believe we are ~80% through this cycle, a phase that historically shows commodity price inflation.

“Mining equities are cheap vs multiples at comparable phases of previous economic cycles and would trade close to mid-cycle multiples even if current commodity prices fell -10%, indicative of valuation support.”

READ: Glencore investors likely to proceed with caution after US subpoena

Rio Tinto is cheaper than most, they argue, pointing to the stock’s 15% discount to rival BHP Billiton plc (LON:BLT) as another reason for the upgrade.

Despite the general optimism, JP Morgan downgraded Glencore PLC (LON:GLEN) to ‘neutral’ from ‘overweight’ as US officials look into allegations that some of its subsidiaries bribed government officials to win or retain business.

Quick facts: Glencore PLC

Price: 213.55 GBX

LSE:GLEN
Market: LSE
Market Cap: £284.94 m
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