Citigroup Upgrades Four, Downgrades One In Metals and Energy Sector

In a note this morning, analyst Brian Yu from Citigroup upgraded four names in the mining and energy space while downgrading one. He referred to the sectors as the "Metals and Mining Dust Bowls" given the big underperformance. Mr. Yu also is attracted to the valuations at current levels generally, saying "The US Metals and Mining equities in our coverage have been hit hard by the recent correction in the broader market. However, it is important to note that far from trading near multi-year highs, many were already trading closer to multi-year lows. We remain neutral to cautious on our coverage but see opportunity in names where their growth profile is less contingent on macro conditions" The four names upgraded, with comments below: Consol Energy

: (Buy from Neutral)— CNX benefits from owning low-cost coal assets that generate relatively stable free cash to fund the company's 30% growth objective in gas. While we prefer a better balance between free cash generation vs growth, this can be overlooked following the recent correction. Newmont Mining

: (Buy from Neutral)-— With the Indonesia export tussle resolved, NEM seems well positioned to grow their gold production to 4.9 mln ozs in 2016 from 4.6 mln ozs in 2014. More importantly, 2015 copper output will jump an estimated 69%. Alliance Holdings

: (Buy from Neutral)-Our upgrade of Illinois Basin coal miner AHGP (general partner units) to Buy from Neutral is primarily valuation based following the recent price decline. Freeport McMoran

: (Neutral from Sell)-We are upgrading FCX to Neutral from Sell following the recent price decline. While the company remains highly leveraged to global growth based on their copper and oil exposure, FCX has been aggressively selling assets to manage their balance sheet. Mr. Yu did downgrade one name in the sector, however, with comments below. Cliffs Natural Resources

: (Sell/High Risk from Neutral)-. At $80/tonne iron ore, the company will likely need to shutter production in both Canada and Australia to avoid EBITDA losses, in our view.