JPMorgan has put Anglo American on Negative Catalyst Watch in the run-up to the company's Q2 production update scheduled for July 23, reiterating an Underweight recommendation on the stock and warning of heightened cost-related risks as results approach.
The bank said it has been advocating reduced exposure to European Diversified Miners since March. Its guidance at that time assumed the energy price shock could be absorbed via slower economic growth, lower metals prices and a degree of cost inflation for mining companies.
While JPMorgan noted that its "central thesis for a collapse in copper prices to <$10,000/t has not materialised," the mining and metals cohort has nonetheless lagged the MSCI Europe index over recent months. The firm quantified that underperformance at 7% over the period since March and by 20% since June, contrasting with a 2% gain for the broader index.
Turning to Anglo American specifically, JPMorgan models a first-half EBITDA outcome of $3.8 billion, which is 6% below the Bloomberg consensus figure of $4.0 billion. The bank attributes the shortfall to several factors: weaker iron ore price realisations, softer earnings from the diamonds business, and broader group cost inflation pressures.
JPMorgan highlighted a specific logistics cost move at Minas Rio, saying Brazil-China freight rates rose by approximately $15 per tonne in the second quarter. The bank also noted that tonnes redirected from Middle East customers toward Europe and China "may incur lower prices."
The diamonds division was singled out as an additional drag, with JPMorgan forecasting an EBITDA loss of $217 million for De Beers amid weak market conditions.
The firm's price target for Anglo American stands at A333.50 per share, derived from a sum-of-the-parts valuation of the combined Anglo-Teck entity. That valuation sits close to the stock's then-current price of around A335, the analysts said. They added that an update on the suspension of the Collahuasi desalination plant "carries tail risk," and cautioned that a prolonged suspension would have implications for copper recoveries.
Sector positioning and other names
Across the wider sector, JPMorgan maintained Glencore at Neutral, drawing attention to the miner's exposure to sulphuric acid costs in African copper operations that are now more than three times higher, and reiterating concern over the Collahuasi desalination risk.
Rio Tinto was also left at Neutral. JPMorgan's analysts said the shares are "emerging as a value candidate" after falling to roughly a 25% discount to its price target of A382.50 per share, while remaining cautious about second-quarter cost impacts.
JPMorgan upgraded Kumba Iron Ore to Neutral, following a roughly 25% share-price decline since February that left the stock about 15% below its price target of 314 South African rand per share.
What this means for investors
- JPMorgan's Negative Catalyst Watch on Anglo American signals a higher probability of downside or volatility around the Q2 production update on July 23, driven by cost pressures and weaker commodity realisations.
- The bank's below-consensus EBITDA forecast and specific cost observations (for example, the ~ $15/tonne increase in Brazil-China freight at Minas Rio) provide the basis for its more cautious stance.
- Within the broader mining complex, JPMorgan's neutrality on Glencore and Rio Tinto and its upgrade of Kumba reflect differentiated views on valuation and idiosyncratic risk exposures across names.
Note: The article reflects JPMorgan's published views as stated by the bank's analysts and the figures they provided.