Opportunities Among Gold and Thermal Coal in Latest Commodity Price Update

Strong China steel production is supporting prices for steel inputs despite recession concerns. Otherwise, changes to our commodity price assumptions are mixed, led by higher near-term iron ore prices and lower near-term thermal coal prices. We think thermal coal miner Whitehaven Coal and minerals sands miner Iluka are the cheapest we cover. Both trade at 29% discounts to our AUD 9.50 and AUD 10.50 per share fair value estimates, respectively, with Whitehaven’s down 3% on lower near-term thermal coal prices, partially offset by a weaker Australian dollar. Peer New Hope is also down 3% to AUD 6.10 per share. Iluka’s estimate is unchanged, with a weaker Australian dollar offsetting lower synthetic rutile prices.

Lower nickel, copper, and thermal coal prices more than offset higher zinc prices and we cut our Glencore estimate 6% to GBX 500. However, we retain our estimate for Glencore’s acquisition target Teck Resources of USD 40. Gold prices are modestly lower on higher bond yields. However, we retain our fair value estimates for gold miners Newmont, Barrick, Agnico Eagle, and Kinross of USD 54, USD 21, USD 53, and USD 5.20 per share, respectively. We also maintain our estimate for Newcrest of AUD 33 in line with Newmont’s offer.

Higher iron ore prices drive increased fair value estimates for Fortescue and Deterra, up 7% to AUD 16 and up 8% to AUD 4.20, respectively. They more than offset lower copper prices, and for Vale, lower nickel prices too, and we raise our estimates for BHP, Rio Tinto, and Vale by 4%, to AUD 41, AUD 111, and USD 14.50, respectively. Higher iron ore and metallurgical coal prices and a weaker GBP/USD rate more than offset weaker platinum group metals and diamond prices, with our fair value estimate for Anglo American up 5% to GBX 2,650. South32′s estimate falls 5% to AUD 3.90, with higher metallurgical coal prices outweighed by lower prices for other commodities.