Fortescue climbs and South32 falls after UBS rating changes
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The news: Fortescue shares gained despite a broad sell-off across Australian mining stocks in morning trade after UBS upgraded its rating on the iron ore producer.
The numbers: Fortescue shares were up 1.8% to $16.08 at 1pm AEDT, having lowered 35% over the last 12 months.
UBS upgraded its rating from 'sell' to neutral', but cut its target price from $17.30 to $16.30. Analysts said that concerns over the outlook for iron ore prices are "overdone", and they expect prices to hold at USD90 to USD100 per tonne for the next five years.
Meanwhile, shares in metal miner South32 (-1.8%) dropped after UBS downgraded its rating from 'buy' to 'neutral' and trimmed its target price from $4 to $3.70. Analysts noted that South32's operational performance has improved and its balance sheet is strong, but higher costs are likely to weigh on future earnings.
The materials sector was down 1.05% while the ASX 200 was 0.12% lower.
The context: On Fortescue, the UBS analysts said iron ore prices have been firmer than expected over the year to date, with supply tighter due to weather disruption and demand remaining stable. They noted that Fortescue is leveraged to the iron ore price due to its single-commodity exposure across its portfolio.
On South32, the analysts flagged risks to the capital expenditure budget at its Hermosa project in Arizona, as well as inflationary pressures due to new US tariff announcements. They also noted possible higher capital expenditure at its Sierra Gorda copper mine in Chile and risks around the expiry of its 15-year power contract at its Mozal aluminium project in Mozambique.
The source: UBS research
