Rudi's View | Jun 27 2024
Updates on strategies, model portfolios, key picks, best buys and conviction calls.
By Rudi Filapek-Vandyck, Editor
Don't give up. Don't despair. The world economy should be in a better environment overall this time next year. The process to bring inflation back to target and to normalise central bank interest rates is simply unfolding slower than expected.
Such is the message communicated by Barrenjoey's team of metals and mining analysts led by Glyn Lawcock (previously at UBS).
A weaker Chinese economy is central in the team's assessment, as is the much flatter trajectory in the global disinflation process (see also the latest CPI release in Australia this week).
Approaching the half-way mark in calendar 2024, the team has made a number of changes to forecasts, with consequences at the individual stock level. Four mining stocks have seen ratings change:
-Fortescue ((FMG)) moved to Underweight from Neutral
-Liontown Resources ((LTR)) moved to Underweight from Neutral
-Northern Star ((NST)) moved to Neutral from Overweight
-Evolution Mining ((EVN)) moved to Neutral from Underweight - the sole upgrade made.
As far as commodity price forecasts go, Barrenjoey sees iron ore weakness in Q3 (seasonal) followed by a pickup in Q4, but also has sharply lowered lithium price projections (-20%).
Both forecasts for gold and silver have been raised, though the picture for gold miners remains mixed and muddled as weather impacts on production output and margins remain subjected to capex, opex, and operational disappointments.
In the share market, Barrenjoey advocates investors seek out miners with plenty of free cash flow, a strong balance sheet, and growth that does not required additional funding.
Rio Tinto ((RIO)) is preferred over BHP Group ((BHP)), partially because of a cheaper valuation. Copper remains a favourite, with Metals Acquisition ((MAC)) and Sandfire Resources ((SFR)) preferred exposures.
Newmont Corp ((NEM)) is the broker's preferred gold miner. For playing the battery raw material space, Barrenjoey prefers Lynas Corp ((LYC)), Mineral Resources ((MIN)), Arcadium Lithium ((LTM)), Wildcat Resources ((WC8)) and IGO Ltd ((IGO)).
Overweight-rated stocks include Iluka Resources ((ILU)), Meteoric Resources ((MEI)), Perseus Mining ((PRU)), Predictive Discovery ((PDI)), South32 ((S32)), West African Resources ((WAF)), and Whitehaven Coal ((WHC)).
Equity strategist Damien Boey has trimmed his previous Overweight portfolio positioning towards the mining sector.
In contrast, global strategists at JP Morgan see no reason to waver from their positive view. This week they argued:
"We believe the recent pullback in commodities is just that -a pullback- and we continue to see a 10% appreciation in the broader BCOM Commodities index by year-end. The fundamental backdrop for Eurozone equities is improving, but political uncertainty needs to lift to see sustained outperformance."
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