JPMorgan Places Anglo American on Negative Catalyst Watch Ahead of Q2 Report

JPMorgan has placed global mining company Anglo American on Negative Catalyst Watch ahead of its second-quarter production report scheduled for July 23, citing elevated cost risks. The bank reiterated its Underweight rating on the stock, signaling potential for negative news that could impact the share price.

Earnings Forecast Below Consensus

Analysts at JPMorgan forecast Anglo American's first-half EBITDA will be $3.8 billion, which is 6% below the Bloomberg consensus estimate of $4.0 billion. The bank attributes this expected shortfall to several headwinds facing the miner's diverse operations.

Key factors behind the cautious outlook include:

• Weaker Iron Ore Prices: The bank expects lower price realizations for the company's iron ore shipments.
• Diamond Market Drag: JPMorgan forecasts a significant EBITDA loss of $217 million for the De Beers diamond unit amid persistently weak market conditions.
• Rising Freight Costs: The Brazil-China freight rate for its Minas Rio operation rose by approximately $15 per tonne in the second quarter.
• Group-Wide Inflation: Broad cost inflation is expected to continue pressuring margins across the company.

Broader Sector Underperformance

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JPMorgan's call on Anglo American aligns with its cautious stance on European Diversified Miners since March. The bank noted that while its prediction for a major copper price collapse has not materialized, the mining sector has still underperformed the MSCI Europe index by 7% since March and by 20% since June.

The bank also highlighted potential "tail risk" from the suspension of the Collahuasi desalination plant, noting that a prolonged shutdown would have implications for copper recoveries. This risk was also flagged for Glencore.

Ratings on Other Miners

In its sector review, JPMorgan maintained its ratings on several other major miners. Glencore and Rio Tinto were both kept at a Neutral rating. Analysts noted Rio Tinto is "emerging as a value candidate" but remain cautious on second-quarter cost impacts.

Conversely, the bank upgraded Kumba Iron Ore to Neutral from Underweight, citing a roughly 25% decline in its share price since February, which has improved its valuation.