Jefferies cuts targets for miners, downgrades Glencore Xstrata

27th Mar 2014 10:54

Jefferies has lowered its earnings forecasts and target prices across the UK-listed mining sector and cut its rating for Glencore Xstrata, recommending investors to stick with top picks Rio Tinto and BHP Billiton."Chinese demand growth for commodities is unlikely to accelerate without aggressive stimulus, and commodity prices should therefore remain rangebound near current levels," the broker said on Thursday morning."We are lowering some of our commodity price forecasts, earnings estimates and target prices to reflect this 'new normal'."Jefferies said that demand growth for commodities will be sluggish as the Chinese economy "muddles along". It has cut its forecasts for a host of base and precious metals, along with coal and iron ore. Its biggest reductions are to its estimates for coal.Glencore Xstrata has been cut from 'buy' to 'hold' due to its high exposure to seaborne thermal coal market, which has "poor" fundamentals. Meanwhile, it has high net debt and a relatively high equity valuation."We continue to recommend that investors buy shares of Rio and BHP as these companies are well positioned to grow earnings, free cash flow and dividends even in a soft commodity price environment. We expect significant share repurchases from BHP ($5bn to be announced this August) and Rio ($3-5bn to be announced next February)."The FTSE 350 mining sector was trading 1.5% lower on average on Thursday morning.BC