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Anglo American upgraded to ‘neutral’ by UBS but scepticism over Sirius Minerals takeover remains

Investors are expected to question the rationale of the potential £400mln deal announced last month due to capital expenditure and commodity prices

Anglo American plc - Anglo American upgraded to ‘neutral’ by UBS but scepticism over Sirius Minerals takeover remains

Anglo American plc (LON:AAL) shares rose on Wednesday as UBS upgraded its rating for the blue-chip miner to ‘neutral’ from ‘sell’, although its analysts still expect continued scepticism over the firm's takeover of Sirius Minerals PLC (LON:SXX).

In a note to clients, analysts at the Swiss bank said they expect investors to question the rationale of the potential £400mln deal, which was announced last month.

READ: Sirius Minerals sets up shareholder helpline as it confirms Anglo American takeover timetable

The acquisition of the cash-strapped fertiliser miner comes amid polyhaylite commodity price uncertainty and with high capital expenditure, likely to lower free cash flow for seven years, according to UBS.

But, Sirius aside, the bank's analysts see potential in Anglo American’s exposure to platinum group metals, expected to be robust for the next years, while copper, diamonds and coal are expected to improve.

They added: “We see downside to the share if coronavirus is not contained in the first quarter and commodities fall deeper into the cost curve; we see upside if China aggressively supports its economy.”

The analysts maintained a 2,000p price target on Anglo American shares, which were up 2% to 2,103p on Wednesday morning.

Quick facts: Anglo American plc

Price: 1783.2 GBX

Market: LSE
Market Cap: £24.39 billion

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