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RBC declares Glencore 'top pick' in mining sector
Analysts at RBC Capital took a fresh look at mining giant Glencore on Tuesday, arguing that the market reaction to the new Russian sanctions provided an "even better" entry point to its 'top pick' in the sector.
While RBC admitted that the revised Russian sanctions might represent another headline risk, albeit one with a minor tangible impact.
Hence, its analysts continued to see Glencore's "compelling valuation" as providing a strong entry point for investors.
Highlighting Glencore's global commodities reach and long history of trading with Russia, analysts Tyler Broda and Barbora Baluskova said the new US Treasury OFAC sanctions on certain Russian individuals, particularly those related to Oleg Deripaska, had put at risk a small portion of marketing business revenues.
However, overall the contracts with Rusal were seen as "immaterial" to the firm as a whole, they said, even if the mark-to-market loss on the group's 8.8% Rusal stake was estimated at $300m.
Separately, on Tuesday Glencore announced that it was cancelling its proposed swap of Rusal shares for stock in EN+ and that its chief executive, Ivan Glasenberg, would be stepping down from the board of Rusal, meaning that alongside Rusal's own decision to stop payments, the firm should be provided with sufficient distance, the Canadian broker said.
"As we understand it, a decision by OFAC to name other non-US entities under secondary sanctions would be a further escalation and would need to follow due process. The potential for a Russian retaliation of some sort remains and although it will be difficult to judge any impact in advance with Glencore being a non-US entity we think is unlikely to be hit by the main focus of any sanctions," read RBC's Tuesday morning research note.
RBC reiterated its stance on Glencore as its 'top pick' and issued it with a price target of 460p per share.