Glencore the best of a moderate bunch at the top of the commodity cycle


UBS asks the rhetorical question, do any miners offer value at ‘normalised’ prices?

The short answer is “yes”.

Glencore PLC (LON:GLEN) is the only one worth the candle, according to UBS. It is the only stock whose valuation is based on less than “normalised” commodity prices.

“Spot valuations generally look cheap (as normal at the top of the cycle), near-term cash returns are attractive for most miners, and we do not see an obvious catalyst for a near-term collapse in commodity prices,” UBS said.

That being said, the broker thinks that to remain a buyer of mining stocks you need to see two things:

  1. fundamental valuation upside at ‘normalised’ commodity prices;
  2. structural upside to medium/long term commodity prices.

Regarding the latter, the Europe, Middle East and Africa (EMEA) miners, apart from Antofagasta PLC (LON:ANTO) are pricing-in elevated spot prices but in UBS’s opinion, most are pricing-in realistic or optimistic 2022 prices based on EV/EBITDA (EV = enterprise value and EBITDA = underlying earnings) and are generally discounting long-term prices above the consensus forecast – except for Glencore, that is.

Glencore is the only EMEA mining stock that UBS rates as a “buy”. The broker is neutral on Anglo American PLC (LON:AAL), BHP Group PLC (LON:BHP) and Rio Tinto PLC (LON:RIO) while Antofagasta PLC is rated a ‘sell’.


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