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    Private Client Research 18 November 2020

    Mining Sector

    Spot scenarios

    Ord Minnett has reviewed its sector coverage after running spot commodity prices to perpetuity and makes the following observations:

    1. A spot iron ore price of US$125/t sees the majors and Mineral Resources (MIN, Hold) lead spot earnings upgrades against consensus, and we remain positive on the outlook for 2021.

    2. However, our wider coverage list is becoming more skewed to downgrades for mark-to-market earnings.

    3. Fortescue Metals Group (FMG) has the highest spot free cash flow (FCF) yield at 18% in CY21 and 23% in CY22.

    Our key stock preferences under coverage remain Rio Tinto (RIO), BHP Group (BHP), Fortescue Metals and Gold Road Resources (GOR), which all carry our Buy recommendation.

    Figure 1: Spot vs Bloomberg consensus CY21E EBITDA

    Source: Ord Minnett estimates, Bloomberg Finance L.P. Note: AWC data represents NPAT instead of EBITDA due to inconsistency of EBITDA reporting with consensus

    Figure 2: ASX300 Metals & Mining Index EPS revisions

    Source: Bloomberg Finance L.P.

    50% 40% 30% 20% 10%

    0% -10% -20% -30% -40% -50%

    * NST assumes merger with SAR goes ahead in February

    -1% -2% -2% -2% -2% -5% -6%

    -12% -14% -14%
    -23%

    -50%+
    MIN FMG RIO NST* BHP BSL SFR OZL WSA GOR NCM IGO SBM SAR EVN RRL S32 AWC OGC ILU WHC ORE PLS GXY

    50%+

    30% 29% 27%20%

    1%

    -26%

    450 400 350 300 250 200 150 100

    50
    Jun-15 Dec-15 Jun-16

    Dec-16 Jun-17
    ASX300 Metals & Mining EPS Revisions (Consensus)

    Dec-19 Jun-20


 
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