EMEA Mining:Cutting estimates,reiterate cautious view

Reiterate Neutral sector view with further earnings cuts

    We reiterate our cautious view on the EMEA mining sector over the remainderof 2017. Macro indicators for the mining sector continue to modestlydeteriorate through Q2with few bright spots. Also, we have revised ourcommodity price forecasts which result in ~11% EPS downgrades forCY17/18e for the EMEA miners. Thus, we sit broadly in-line with consensus forthe same period, and thus do not expect the sector to be supported by furtherearnings revision momentum in the near-term. Instead, we look for companyspecific catalysts to offer better opportunities over the remainder of 2017.Commodity price revisions: cuts to Cu, Zn, oil, upgrades to Al, FeWe have updated our commodity price forecasts across the metals and energyspace. The greatest changes are for oil (cutting 17-19e estimates by ~13%respectively) and aluminium (hiking our 17-19e estimates by~8%). However,we have also cut forecasts for copper and zinc modestly for the same period.For iron ore, we have cut our 17e forecast by ~9% to USD 63/t, but havemodestly upgraded our 18/19e forecast by ~2%. Although we have modestlyupgraded our 17e gold price forecast by ~4% to USD 1,250/oz, we have alsocut our 18/19e ~1%. Our seaborne thermal coal price forecasts remainrelatively unchanged.

    Earnings cuts for BLT, AAL, GLEN, ANTO, FQM; upgrades for RIO, S32, NHY

    Leading from our commodity price revisions, we have cut our earningsestimates over the medium term by ~11% on average for the EMEA miners.Most notably, we have downgraded BHP, GLEN and AAL 17-19e estimates by9% on average given our commodity price forecast cuts. However, we haveupgraded our RIO and S32EPS estimates by ~7% and ~20% respectively overthe same period given our hiker aluminium price forecasts. Among the basemetal miners, we have cut 17-19e EPS estimates most for Antofagasta (~25%)and First Quantum (~40%) the most given model overhauls and lower copperprices. NHY stands at as the sole base metal company with sizeable earningsupgrades (~16%) over the period.

    Reiterate Rio Tinto, First Quantum as top picks

    Among the EMEA diversified miners, Rio Tinto remains our top pick with itscombination of cash return potential, higher quality growth, and lower opexportfolio. First Quantum is our top pick among the pure play miners. Weexpect the completion of Cobre Panama (early 2018) and project financing (H217) to offer positive catalysts over the next twelve months. Additionally, weexpect FQM can weather a worsening geopolitical landscape in Zambia anddoubt any mining tax revisions will be proposed in the near-term.

    Sector still fairly valued, risks evenly weighted

    The EMEA miners are trading at ~5x 2018e EV/EBITDA and ~10% 2018e FCFon DBe as well as spot commodity prices, indicating no real mark to marketupgrade potential. Also, with our estimates largely in line with consensus, wedoubt the miners will benefit from further earnings revision momentum overthe near-term. Thus we reiterate our Neutral view on the EMEA mining sector.We value the miners using DCF, EV/EBITDA, and FCF yield. Risks commodityprices, geopolitics, China macro, FX.