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[vc_row][vc_column width="1/1"][vc_column_text]The mining sector has ventured a long way from the dark days of late 2015 and early 2016. UK miners find their shares trading at pre-commodity slump levels, just 24 months after falling to their lowest levels in a decade. Some are now even trading at 10-year highs.
How has the sector managed such a stellar recovery, and where might miners’ shares go from here?
This report delves deeper into the sector to explain the wide range of drivers impacting the sector, and previews all-important upcoming full-year results.[/vc_column_text][vc_column_text]
A prominent market theme of the past 12 months has been persistent US dollar weakness, with the global reserve currency falling to its lowest level since December 2014 in the early weeks of 2018.
Perceptions of increased protectionism under the pro-America Trump administration, in combination with central banks across the globe playing catch up to the US Federal Reserve, have dented sentiment for the greenback, with deep consequences for miners.
Dollar-denominated commodities have received a tremendous boost from the dollar weakness, a reaction that has also helped the miners themselves.
Copper traded a 3-year high in December 2017 and, despite retreating marginally as the dollar stabilises, remains within touching distance of those highs.
Whether key commodities like copper continue to trade around multi-year highs depends on the buck.
But already, there are signs the dollar might be out of the doldrums and on course for a rosier 12 months.[/vc_column_text][vc_column_text]
Whilst 2018 hasn’t seen the dollar recovery expected after tax reform was passed last year, it also hasn’t seen protracted decline we saw in January 2017.
Tax reform under his belt, the President now has his first legislative victory and the fresh confidence that comes along with it. Next on the agenda is an enormous $1 trillion infrastructure spending plan, a key pillar of Trump’s presidential campaign agenda.
The policy focus of the administration, as well as the outcome of November’s mid-term elections, will be a major driver for the dollar, and subsequently miners.[/vc_column_text][vc_column_text]
With major mining operations in South America South Africa and Australia, amongst others, UK miners are exposed to a plethora of external factors.
Both South African and South American political spheres are undergoing a dramatic overhaul. The former is planning for President Zuma’s succession after nine years in charge, while corruption trials in Brazil have fuelled South American angst.
Meanwhile Australia, one of the most exposed states in the world to China, and could be subject to a A$140bn (£80.5bn) hit to national income should the Chinese economy hit a widely touted hard landing.
These themes will be closely watched in 2018. Mining is a global business and, as such, global events like these will continue to influence the sector this year.[/vc_column_text][vc_column_text]
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The worst hit miner during the commodities downturn – trading all-time lows in January 2016 – Anglo has enjoyed one of the most impressive share price recoveries in history, having rallied over 700% from those lows to trade 5-year highs in 2018. Shares rallied 0.8% after January’s Q4 production update and, more notably, rallied 3.2% in July after half-year results. Will the shares enjoy another positive reaction to the full-year print?[/vc_column_text][vc_column_text]
The Chilean copper miner has followed a consistent trading range since Summer 2017 after a breakout from 868p resistance. Whilst trading just shy of 2017’s fresh 5-year highs of 1071.5p, Antofagasta’s results this year have been mixed. A 2% rally after Q2 results was followed by 4.4% and 0.8% declines after Q3 and Q4 production.[/vc_column_text][vc_column_text]
One of two dual-listed Australian miners – and the largest on the UK Index – Billiton is the only company releasing half year figures. Having rallied 2.1% following August’s FY results, and 0.4% a year ago, will it be three-in-a-row?[/vc_column_text][vc_column_text]
Of the two UK Index precious metal miners, silver-focused Fresnillo has endured some topsy-turvy reactions to trading statements over the past 12 months. Although shares rallied 3.7% after Q4 production in January, shares fell 2.3% and 2.6% after Q3 production and Q2 results, respectively. Which reaction will FY results mirror?[/vc_column_text][vc_column_text]
The miner and commodity trader formed after the Xstrata merger is one on the most popularly traded UK 100 stocks and another to enjoy a meteoric recovery since late 2015 (+500%). Glencore’s shares fell 1% after the release of FY production figures earlier in February, but will FY results emulate last year’s 1.7% post-results rally?[/vc_column_text][vc_column_text]
The premier UK gold miner, Randgold has been a narrowing patter since trading all-time highs after the UK’s Brexit vote. A driver behind this may be the mixed share price reaction to results of late. Having rallied an impressive 4.2% a year ago and 2.4% after Q2 results in August, shares fell over 7% back in November.[/vc_column_text][vc_column_text]
The second dual-listed Miner, Rio Tinto is also the second largest miner by UK 100 weight. It’s been a difficult 12-months results-wise, with shares falling 2.8% after Q2 results and 2.0% in January after Q4 production.[/vc_column_text][vc_column_text]
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Bullish: Macquarie, Outperform, Target 2100p, +24% (30 Jan 18)
Average Target: 1642.4p, -3.1% (1 Feb 18)
Bearish: Liberum, Sell, Target 800p, -53% (1 Feb 18)
Pricing data sourced from Bloomberg on 1 February. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Jefferies, Buy, Target 1250p, +37% (24 Jan 18)
Average Target: 916.4p, +/-0.0% (1 Feb 18)
Bearish: Morningstar, Hold, Target 410p, -55% (24 Jan 18)
Pricing data sourced from Bloomberg on 1 February. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Macquarie, Outperform, Target 2000p, +28% (26 Jan 18)
Average Target: 1537.7p, -1.5% (1 Feb 18)
Bearish: Liberum, Sell, Target 800p, -49% (1 Dec 17)
Pricing data sourced from Bloomberg on 1 February. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Scotia Capital, Outperform, Target 1700p, +26% (24 Jan 18)
Average Target: 1456.9p, +8.1% (11 Jan)
Bearish: Goldman Sachs, Neutral, Target 1150p, -15% (7 Dec 17)
Pricing data sourced from Bloomberg on 1 February. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: NOAH Capital Markets, Buy, Target 586.5p, +46% (26 Jan 18)
Average Target: 446.6p, +11% (1 Feb 18)
Bearish: Liberum, Sell, Target 300p, -25% (1 Feb 18)
Pricing data sourced from Bloomberg on 1 February. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: SBG Securities, Buy, Target 12500p, +77% (4 Aug 17)
Average Target: 7833.9p, +10% (1 Feb 18)
Bearish: RBC Capital Markets, Sector Perform, Target 6600p, -6.7% (20 Jan 18)
Pricing data sourced from Bloomberg on 1 February. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Macquarie, Outperform, Target 4900p, +25% (26 Jan 18)
Average Target: 4157.3p, +5.9% (1 Feb 18)
Bearish: Liberum, Sell, Target 2750p, -30% (1 Feb 18)
Pricing data sourced from Bloomberg on 1 February. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Whether you see UK Stocks going up or down for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.
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While buying 14,182 shares in Lloyds Banking @ 70.51p requires an outlay of around £10,000 plus commission, the same exposure via a CFD requires about £500 plus commission (see right-hand box; margin + costs). If a trader invests in Lloyds Banking, one would assume they believe the share price is likely to move in their favour. After considering the ‘worst case scenario’ and assigning funds to cover it, the trader may conclude there’s little point in exposing the full £10,000 to Lloyds Banking shares - some of that capital could be put to good use elsewhere in the markets. (Source: CMC, Prices indicative)
If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure. The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into a CFD trading account and take the equivalent CFD position which will tie up as little as 3%/£300 (note that overnight financing costs will still apply). The remaining £9,700 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty![/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]
Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios download our ‘Comprehensive Guide to CFDs’ here.[/vc_column_text][/vc_column][/vc_row]
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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
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