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Liberum analysts give Xstrata hold rating on Q1 production results

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Analysts at Liberum Capital have given Xstrata’s stocks a hold recommendation following the release of the company’s first-quarter production results.

“Xstrata’s [first-quarter] production is broadly in line with our estimates across all commodities, [excluding coking coal],” the analysts said.

“We see an in-line performance in thermal coal as a key positive, given its peers’ weak performance due to weather issues,” they added.

Copper production was weaker year-on-year, the analysts said, but was in line with guidance.

“As guided, [first-quarter] copper was 18% lower [year-on-year], [but] it was broadly in line with our [first-half] run rate,” they said.

The analysts expect better volumes from the second quarter of this year at the Antamina copper-zinc operation in the Peruvian Andes, they added.

“Its 38% processing capacity expansion was completed during [the first quarter], as the Ernest Henry underground ramp-up accelerates, plus Collahuasi moves into higher-grade ores in [the second half],” they said.

Xstrata’s first-quarter total coal production was up 9% year-on-year, and received thermal coal prices were largely in line with Liberum’s expectations, the analysts said. The company has not, however, confirmed its coal settlement for all its Japanese customers.

The analysts also noted the company’s “robust trading statement”, referring to Xstrata’s avowal that its operating and financial performance has continued to be strong in 2012, and that it is in a solid financial position.

“We view this [first-quarter interim management statement] positively for Xstrata’s share performance, as we saw downside earnings risk due to thermal coal, which did not materialise,” the analysts said.

“On spot prices, we forecast Xstrata’s 2012 net income at $4.8 billion, [versus] the $5.4 billion Bloomberg 28-day consensus,” they added.

This means that, at 12.1x 2012 price-to-earnings ratio mark to market, Xstrata’s shares are starting to look expensive.

This could, however, represent near trough earnings, the analysts said, as they believe thermal coal prices have now reached their floor, and copper prices have traded in a narrow range of $8,000-8,500 per tonne in 2012 so far.

“With the Xstrata/Glencore share price ratio improving to stand at 2.7667, we now see small near-term upside for Xstrata’s shares,” they said.

Xstrata’s shares were trading at 1,197 pence ($19.46) each on the London Stock Exchange at 15:38 BST on Tuesday May 1, up 1.66% compared with the close of trading on the previous day.

Claire Hack 
chack@metalbulletin.com 
@clairehack_mb

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