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Deutsche Bank upgrades Ferrexpo, raises targets for other miners on higher iron ore prices on near-term supply risks

Following the Feijao dam disaster, Vale announced plans to decommission 10 of their upstream tailings dams, impacting 40mln tonnes per annum of production capacity over a three-year period
Iron ore
in Deutsche Bank's view, Ferrexpo has the most to gain from the reduction in pellet volumes in 2019/20

Deutsche Bank has upgraded its rating for iron ore group Ferrexpo PLC (LON:FXPO) and raised targets and estimates for other miners of the metal due to higher prices on near-term supply risks.

In a note to clients, analysts at the German bank pointed out that, following the Feijao dam disaster at the end of last week, Brazilian giant Vale SA announced plans to decommission 10 of their upstream tailings dams, impacting 40mln tonnes per annum (mpta) of production capacity over a three-year period.

READ: Iron ore in a technical bull market following dam collapse but how long will it last?

As a result, the analysts believe there will be a net reduction in pellet production, with their base case being that Vale reduces net exports by 10mln tonnes in 2019, and delays the restart of its Samarco operations to beyond 2020

They pointed out that, in their view, Ferrexpo, as a leveraged pellet producer, has the most to gain from the reduction in pellet volumes in 2019/20.

The analysts have, therefore, upgraded their rating for the FTSE 250-listed firm to ’buy’ from ‘hold’ with an increased target price of 270p, up from 220p previously.

In early afternoon trading, shares in Ferrexpo were 7.9% higher at 249.50p.

The Deutsche Bank analysts also raised their target prices for Anglo American PLC (LON:AAL), BHP PLC (LON:BHP) and Rio Tinto PLC (LON:RIO) after increasing their 2019/20 estimates for underlying earnings (EBITDA) for the three FTSE 100-listed firms by 5-10% on their iron ore price revisions.

They raised their target price for Anglo American to 1,800p from 1,700p, keeping a ‘hold’ rating on the stock; upped Rio Tinto’s target to 4,250p from 4,100p, also maintaining its ‘hold’; and hiked BHP’s target to 1,600p from 1,550p while reiterating a ‘sell’ stance.

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