Broker snap: Jefferies cuts targets across the mining sector

17th May 2012 10:41

Jefferies has reduced its target prices for miners under its coverage by around a tenth on average as macroeconomic concerns have increased in recent weeks."Mining shares have recently underperformed commodities and the broader equity markets. We attribute this underperformance to several factors, including cost inflation and concerns about global growth," the broker said.For example, Chinese growth is slowing and the recent run of worse-than-expected Chinese economic data has put additional pressure on mining stocks.Nevertheless, Jefferies says that the FTSE 350 Mining Index having fallen by 14% in this month alone strengthens the value argument, "especially for shares of higher quality miners." The broker says that the recent weakness in the sector should be seen as a buying opportunity for BHP Billiton and Rio Tinto, in particular."If we assume current spot commodity prices for future periods, our formal earnings per share estimates would be 10-20% too high on average over the 2012-2014 period. While consensus earnings downgrades are a risk, we would argue that mining equities are already discounting an earnings outlook well below consensus expectations."Despite the reductions in target prices, the broker stresses that it still sees more than 30% potential upside for the sector over the next 12 months. The target price changes and recommendations for some of the biggest miners are listed below.Anglo American: Target cut from 3,300p to 2,950p, buy rating kept.Antofagasta: Target cut from 1,400p to 1,050p, hold rating kept.BHP Billiton: Target cut from 2,500p to 2,350p, buy rating kept.Glencore: Target cut from 525p to 460p, buy rating kept.Kazakhmys: Target cut from 1,250p to 900p, buy rating kept.Rio Tinto: Target cut from 4,300p to 4,000p, buy rating kept.Vedanta Resources: Target cut from 1,300p to 1,200p, hold rating kept.Xstrata: Target cut from 1,500p to 1,300p, buy rating kept.Mining stocks were trading 1.44% lower on average in mid-morning trade.BC