RBC upgrades Glencore and Rio Tinto
Analysts at RBC Capital Markets took a fresh look at miners Glencore and Rio Tinto on Monday, adjusting their target price and upgrading their recommendation on both firms's shares on the back of higher near-term iron ore price forecasts.
With the higher price forecasts and sentiment around "resilient" iron ore likely to be "more positive", RBC thinks a neutral position on Rio Tinto was warranted in the coming months.
However, RBC noted that it still saw "considerable risks" to the
longer-term from lower iron ore prices in the second half of 2020 and a portfolio that depends too heavily upon Rio's high return on capital employed Pilbara projects to support share prices.
"We tactically upgrade to 'sector perform'," said RBC, which also raised its price target on the group from 3,700p to 3,900p.
As far as Glencore was concerned, RBC stated the group had underperformed the FTSE 350 mining index by roughly 36% since the end of 2017, when significant divergence started to show.
"Glencore's past two years have been beset by significant challenges including the Department of Justice investigations, a significant lowering of near-term expectations for its African copper assets, collapsing thermal coal and cobalt prices, and operational inertia elsewhere," said RBC.
However, the Canadian broker now calculates a 23% implied upside to its heavily discounted valuation and as such, moved its rating from 'sector perform' to 'outperform' but lowered its price target from 310p to 290p per share.
While RBC admitted that Glencore was "not for everyone", with the risk/reward scenario now improved the analysts said the firm "should not be forgotten" either.