Barclays believes worst of iron ore price slide over, positive on mining

Alexander Bueso Sharecast | 21 Apr, 2017 11:05 | | |

Iron ore mining

Glencore

279.50

17:18 23/06/17
-0.83%
-2.35
  • 3,052.50
  • 0.46%14.00
  • Max: 3,072.50
  • Min: 3,029.50
  • Volume: 3,157,586
  • MM 200 : n/a
17:18 23/06/17
  • 7,424.13
  • -0.20%-15.16
  • Max: 7,441.79
  • Min: 7,396.75
  • Volume: 0
  • MM 200 : n/a
17:19 23/06/17
  • 14,250.36
  • -0.03%-4.09
  • Max: 14,337.18
  • Min: 14,183.99
  • Volume: 0
  • MM 200 : n/a
17:19 23/06/17
  • 2,239.73
  • -0.07%-1.49
  • Max: 2,263.54
  • Min: 2,191.08
  • Volume: 0
  • MM 200 : n/a
17:19 23/06/17
  • 4,118.64
  • -0.15%-5.99
  • Max: 4,127.19
  • Min: 4,104.21
  • Volume: 0
  • MM 200 : n/a
17:19 23/06/17
  • 4,063.60
  • -0.13%-5.47
  • Max: 4,071.82
  • Min: 4,049.88
  • Volume: 0
  • MM 200 : n/a
17:25 23/06/17
  • 154.25
  • 1.48%2.25
  • Max: 155.00
  • Min: 151.50
  • Volume: 1,604,979
  • MM 200 : n/a
17:18 23/06/17

Analysts at Barclays sounded a positive note on the EU mining sector, flagging the potential for large cash returns from Glencore, S32 and Rio Tinto over the medium-term.

Critically, the broker believes the best part of the iron ore price slide is now past.

Hence, the "vicious mini down-cycle" in Chinese steel and iron ore prices has opened up an interesting opportunity in the space.

China's economy was still solid, supply discipline is generally holding despite the higher prices and sector valuations are still compelling, analysts Amos Fletcher and Ian Rossouw said in a research note sent to clients.

They highlight how spot free cash flow yields are at 14% and 16% for 2017 and 2018, which together with strong balance sheets meant the majority of those monies would be funelled into cash returns.

On their estimates, their favoured names, Glencore, S32 and Rio Tinto were capable of returning the equivalent of 63%, 62% and 39% of their market capitalisation, respectively, over the coming four years without breaching their gearing targets.

"We remain positive on the EU mining sector."

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