Anglo American PLC (LON:AAL) shares were given an extra push downwards on Wednesday as JPMorgan Cazenove ended its three-year ‘conviction overweight’ rating on the mining giant.
A day ahead of a scheduled first-quarter production update from the FTSE 100 group, Cazenove downgraded its stance to ‘neutral’, with a 2,300p price target.
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The investment bank said it remained positive on the mining sector despite some significant share price rallies since December’s lows, but has three concerns about Anglo.
For starters, the shares no longer look cheap after a 40% gain since Christmas and are now seen as “the most expensive” of the diversified miners when looking at next year's forecast free cash flow yield of 2% and P/E ratio of 13 times.
What’s more, if the Minas Rio iron ore mine in Brazil does not get its required tailings permit by the end of 2019, Anglo has warned it will have to shut the mine down, which Caz said would translate to a 20% cut to 2020 underlying earnings, worth about $0.9bn.
Going into Anglo’s 25 July interim results, there is “heightened risk” for the shares, with this permitting uncertainty “likely to constrain capital returns”.
To take advantage of this period of Anglo uncertainty, the analysts recommend clients take out a “tactical short” linked to a “tactical long” bet on rival Glencore PLC (LON:GLEN).