德银-澳大利亚-金属与采矿业-2018Q1商品评论：采矿周期在2018年继续复苏-20180115-33页_1mb

Australian Mining Sector Summary - 1Q18

Core Content

The Australian mining sector is analyzed in this report, focusing on the recovery of the mining cycle, commodity price trends, sector earnings, and valuation changes as of January 15, 2018. Deutsche Bank provides insights into the sector's outlook and key recommendations based on their forecasts and market analysis.

Main Views and Key Information

Sector Outlook

• The sector is considered fairly valued on a P/NPV basis at 1xNPV, but remains attractive on EV/EBITDA (6x) and FCF yield (c. 10%) basis.
• The mining cycle is still in a recovery phase, and the sector is expected to see continued improvement in free cash flow (FCF) and capital returns, despite rising operating costs and sustaining capital expenditure (capex).
• M&A activity is expected to accelerate in 2018, with a focus on gold, coal, lithium, and mid to large-cap base metals.
• The sector's gearing is at a record low of 7%, indicating strong financial health.

Commodity Outlook

• All but two commodities (aluminium and nickel) are trading above historical real averages.
• Base metals (aluminium, nickel, zinc, copper) are expected to perform better than bulk commodities due to stronger demand from China, Southeast Asia, and other emerging markets, driven by infrastructure and machinery.
• A weaker USD is expected to support commodity prices due to upward pressure on marginal costs.
• Gold prices are forecasted to remain relatively stable, with IGOs pricing in flat US$8.75/lb nickel.

Sector Themes

• Capital management will see increased returns through buybacks and special dividends, with companies like RIO, S32, and BHP expected to announce buybacks.
• Growth capex will increase, but remain below mid-cycle levels.
• The sector is short high-quality projects, which could limit growth opportunities.
• Cost inflation (labour, oil, stripping, and contractor rates) and sustaining capex (holiday hangover) are potential risks.

Top Picks and Sell Recommendations

Buy Recommendations

• BHP.AX: Target price AUD34.50, with an upgraded rating to Buy.
• RIO.AX: Target price AUD83.50, with an upgraded rating to Buy.
• SFR.AX: Target price AUD8.20, with an upgraded rating to Buy.
• OGC.AX: Target price AUD3.70, with an upgrade from Hold to Buy.

Sell Recommendations

• ILU.AX: Target price AUD7.50, with an upgraded rating to Sell.
• IGO.AX: Target price AUD3.90, with an upgrade from Hold to Sell.
• SBM.AX: Target price AUD3.40, with an upgrade from Buy to Hold.

Other Companies

• DCN.AX: Target price AUD3.20, with a Buy rating.
• S32.AX: Target price AUD3.10, with a Sell rating.
• AWC.AX: Target price AUD2.20, with a Hold rating.
• WHC.AX: Target price AUD4.40, with a Hold rating.
• FMG.AX: Target price AUD5.00, with a Hold rating.
• MIN.AX: Target price AUD20.00, with a Hold rating.
• NCM.AX: Target price AUD20.00, with a Sell rating.
• NST.AX: Target price AUD4.70, with a Sell rating.
• RRL.AX: Target price AUD3.50, with a Sell rating.
• WSA.AX: Target price AUD2.80, with a Sell rating.
• SYR.AX: Target price AUD4.90, with a Buy rating.

Valuation and Risks

• Price-to-NPV (P/NPV) is used as a key valuation metric, with the sector currently at 1xNPV.
• FCF yield is at c. 10%, which is considered attractive.
• Valuation and price targets have been updated for several companies, with some upgrades and downgrades based on changes in commodity prices, project developments, and cost assumptions.
• Commodity price volatility, currency movements, and cost inflation are key risks to the sector.

Summary Table of Changes

Company	Previous Rating	Current Rating	% Change in NPV	Target Price (AUD)	Last Price (AUD)	P v/s NPV
BHP	Buy	Buy	17%	34.50	31.53	-9%
RIO	Buy	Buy	6%	83.50	80.62	-3%
SFR	Buy	Buy	5%	8.20	7.23	-12%
OGC	Hold	Buy	2%	3.70	3.20	-14%
AQG	Buy	Buy	6%	4.30	2.22	-48%
ILU	Sell	Sell	4%	7.50	9.95	-25%
IGO	Hold	Sell	6%	3.90	4.95	-21%
SBM	Buy	Hold	6%	3.40	3.72	-9%
WSA	Sell	Sell	18%	2.80	3.35	-17%
NCM	Sell	Sell	4%	20.00	22.95	-13%
NST	Sell	Sell	7%	4.70	5.96	-21%
RRL	Sell	Sell	8%	3.50	4.29	-18%
S32	Sell	Sell	11%	3.10	3.87	-20%
MIN	Hold	Hold	36%	20.00	20.87	-4%
FMG	Hold	Hold	6%	5.00	5.33	-6%
EVN	Hold	Hold	8%	2.40	2.56	-6%
WHC	Hold	Hold	27%	4.40	4.72	-7%
SYR	Buy	Buy	8%	4.90	4.44	-10%

Conclusion

The Australian mining sector is in a recovery phase with positive macroeconomic outlook and improving FCF and capital returns. While the sector is fairly valued on a P/NPV basis, it remains attractive on EV/EBITDA and FCF yield. The report highlights base metals as more promising than bulk commodities and anticipates M&A activity in 2018. Companies like BHP, RIO, SFR, and OGC are highlighted as top picks, while others like ILU, IGO, and NST are recommended for sale. The report also notes that gearing is at a record low, and cost inflation and commodity price volatility are key risks to monitor.