Deutsche Bank Previews Americas Metals & Mining: Upgrades Alcoa, Newmont

In a report published Sunday, Deutsche Bank Markets Research analyst Jorge Beristain gave a first quarter preview on the Americas Metals & Mining Industry.

Industry View

Deutsche Bank maintained preference for Industrial Metals over Precious Metals. The analyst wrote, “We believe that unexpected 1Q14 strength in gold prices relative to industrials is priced into the stocks. Going forward, we see possible upward industrial metal demand surprises (over depressed expectations) and the end of the gold mini-rally due to positive US economic growth shocks, QE tapering, and strengthening US dollar.”

Beristain remarked that the strength in gold will likely be “short-lived” with QE tapering and US growth surprising to the upside. Deutsche Bank is optimistic on aluminum premia. The analyst remarked on the delay in LME inventory destocking and impact on Alcoa AA near-term earnings prospects.

The analyst added that industrial metals have priced in weaker Chinese growth outlook. Beristain added that any “mini-stimulus” will also aid in limiting or even reversing declines.

Upgrades

Deutsche Bank upgraded Alcoa from Sell to Hold and raised the price target from $7.50 to $10 due to a revised NPV estimate. The analyst commented on an increase in aluminum prices and LME “load-out rule reversal.” Despite optimism of gains in share value, Beristain reported that downside risk remains due to the nature of regional premia price support.

The analyst also upgraded Newmont Mining NEM from Sell to Hold and increased the price target from $19.00 to $21.00. Beristain noted that the $2 price target increase reflects Deutsche Bank's revision to gold price forecasts contributing to a “meaningful” increase in free cash flow over 2014-2016. Deutsche Bank wrote, “While we believe, Newmont is taking measurable steps to shore up its B/S by targeting $600-700m savings over 2014-16, cutting dividend formula and deferring growth capex, we cannot rule out a further equity raise at this point.”

Shares of Alcoa closed at $12.63 on Friday and are currently trading down 1.50 percent. Newmont Mining shares closed at $24.39 on Friday. Newmont is currently trading up 1.037 percent.