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Glencore Xstrata’s copper output up; analysts mixed

Keywords: Tags  copper, zinc, nickel, Glencore Xstrata, production report, analysts, share price, Collahuasi Mine Antapaccay Mine

LONDON — Glencore Xstrata Plc’s copper production increased in 2013, but at least two sell recommendations were still issued following the release of the company’s overall production results Feb. 11.

Glencore Xstrata’s own-sourced copper production increased 25.8 percent to nearly 1.5 million tonnes in 2013, driven by strong growth at its African operations, Collahuasi Mine in Chile, Antapaccay Mine in Peru and Mount Margaret (Ernest Henry) Mine in Australia.

Analysts at New York-based Citigroup Inc. issued a buy recommendation for the stock, saying the results were broadly in line with their forecasts, while New York-based Investec Asset Management Ltd. put the company under review with a sell rating.

Analysts at London-based Liberum Capital Ltd. also issued a sell rating, with a target price of £2.50 ($4.10), significantly below Citigroup’s target of £3.70 ($6.09).

Explaining their sell recommendation, the Liberum analysts said they believe Glencore Xstrata will "always operate a stretched balance sheet," although they expect some deleveraging within its industrial assets. "As such, we do not believe Glencore can offer superior additional shareholder returns vs. the other majors."

Analysts at London-based Numis Securities Ltd. focused on the increases in copper production at the company’s Katanga and Mutanda mines in the Democratic Republic of Congo, which both reached a capacity of 200,000 tonnes per year at year-end.

However, the Citigroup analysts noted risks at the company, including highly cyclical patterns driven by coal, zinc and copper.

"Glencore’s desire to grow via acquisition also brings acquisition risk and project delivery risk. If the impact on the company from any of these factors proves to be more negative than we anticipate, the stock is likely to have difficulty achieving our target price," they said.

Investec analysts noted a fall in zinc output as the company’s Brunswick and Perseverance operations in Canada reached the end of their useful mine life. They also pointed to a slight drop in nickel output, and said they believe the company might be preparing for the sale of its Las Bambas copper project in Peru to fail.

A version of this article was first published in AMM sister publication Metal Bulletin.

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