- •Contents
- •Revisions to our forecasts, TPs and ratings
- •Investment stance
- •Capital cycle favours rising returns
- •Comfortable balance sheets and supportive dividend potential
- •Value relative to other stocks
- •Yield potential through the cycle
- •Mid-cycle cash generation offers supportive yields
- •Where to hide if you are bearish
- •What to buy if you are bullish
- •Limited lives weighing down IRR
- •Yields should compensate for limited lives
- •Positive earnings momentum continues to support share prices
- •Commodity price revisions
- •Commodity section
- •Commodity section
- •Preference for base metals over steelmaking materials
- •Earnings revisions
- •Risks and catalysts
- •Peer comp charts
- •Commodity price and exchange rate forecasts
- •Important publications
- •African Rainbow Minerals
- •Alrosa
- •Anglo American
- •Assore
- •Exxaro
- •Glencore
- •Kumba Iron ore
- •NorNickel
- •Rio Tinto
- •Rusal
- •Vale
- •Gold Fields
- •Harmony
- •Polymetal
- •Anglo American Platinum
- •Lonmin
- •Northam
- •Royal Bafokeng Platinum
- •Sasol
- •Disclosures appendix
vk.com/id446425943
Where to hide if you are bearish
Renaissance Capital
1 April 2019
Metals & Mining
In a prolonged cyclical downturn in commodity prices, we believe capacity closures could be required to balance oversupplied markets. In this environment, we have a preference for companies with strong balance sheets and a competitive advantage through low-cost, long-life assets.
Figure 42 illustrates the CY21E FCF yields calculated using our trough commodity prices, which render around 50% of production cash-burning. 15 companies could be cash flow neutral or positive even at our trough commodity price assumptions due to their superior position on cost curves or defensive fixed margin type divisions.
In the analysis below, Rusal’s FCF yield is significantly higher than peers largely due to us using our base case dividends forecast from Norilsk Nickel. We only flex Rusal’s aluminium operations using trough prices.
Figure 42: CY21E FCF yields calculated using our trough commodity price assumptions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
25% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15%+ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6% |
5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required rate of return, 10% |
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
5% |
|
4% |
3% |
3% |
2% |
2% |
2% |
2% |
1% |
1% |
1% |
0% |
0% |
0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
-5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1%- |
1%- |
|
|
4%- |
4%- |
5%- |
7%- |
9%- |
10%- |
10%- |
14%- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3%- |
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-25% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-25%+ |
-25%+ |
|
|
-35% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Rusal |
Norilsk |
Polyus |
Vale |
Glencore |
Polymetal |
South32 |
Amplats |
Exxaro |
Diversified* |
Rio Tinto |
BHP |
Kumba |
Northam |
Sasol |
Assore |
Platinum* |
Anglo |
Gold* |
Impala |
Alrosa |
ARM |
Fortescue |
AngloGold |
RBPlats |
Gold Fields |
Sibanye |
Harmony |
Lonmin |
||||
|
|
||||||||||||||||||||||||||||||||
*Industry average. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Priced as at market close on 26 March 2019.
Source: Thomson Reuters, Renaissance Capital estimates
23