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Barclays cuts target prices for copper miners but sees gold lining

By Alexander Bueso

Date: Wednesday 11 Dec 2019

Barclays cuts target prices for copper miners but sees gold lining

(Sharecast News) - Analysts at Barclays cut their target prices for a large swathe of UK-listed copper miners, on the back of lower projections for the medium-term price of the industrial metal, although there was a gold lining to its forecast changes, so to speak.
The anlaysts cut their target price for Kaz Minerals by 11.0% to 680.0p, for Antofagasta by 6.7% to 700.0p, for Glencore by 6.5% to 290.0p, and for Anglo American by 5.0% to 1,900.0p.

However, they only trimmed their target for BHP by 1.9% and that for Rio Tinto by 0.6%.

In parallel, they cutting their copper price forecasts for 2021 and 2022 by 13.0% and 16.0%, to $2.86/lb. and $2.76/lb., respectively, and for long-term by 11.0% to $3.10/lb..

"Our key conclusion is that the current wave of innovation is set to increase supply and deflate costs, with negative implications for long-term incentive prices," they said.

But they went on to add: "We see gold miners as well-positioned to benefit from higher production and lower costs as supply-demand fundamentals are largely irrelevant to the gold price" although they saw a risk of further near-term downgrades in the case of Fresnillo and Hochschild, both of which they had at 'equalweight'.

Innovation should prove a boon for the large, well-capitalised, early-adopters such as BHP, Rio and Anglo American the broker also said, but not so Antofagasta given its expensive valuation and the little to no growth expected in its free cash flows over the next five years.

After analysing 160 mines and greenfield projects, Barclays predicted that copper supplies would jump by 19.0% over the next five years, or 7.0% more than the industry base case.

All-in sustaining costs meanwhile were seen falling by 7.0% with the incentive price for new copper supply dropping below $3.0 a pound.

For gold, innovation was expected to propel output 10.0% above the base case and drive median costs down by 4.0%, with the cost of a marginal underground gold mine declining by nearly 7.0%.

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