The latest 3 ASX miners to get the chop from Macquarie

ASX mining shares have been powering ahead over the past year but some are starting to fall out of favour with a top broker downgrading three in the sector yesterday.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX mining shares have been powering ahead over the past year as the sector has become somewhat of a safe haven amid the global economic volatility, but some of these stocks are starting to fall out of favour with a top broker downgrading three in the sector yesterday.

But this doesn't mean it's time to go underweight on mining stocks as many of the favourite S&P/ASX 200 (Index:^AXJO) (ASX:XJO) miners still represent good value thanks to their cash-laden balance sheet and low production cost positions.

In fact, the recommendation downgrades by Macquarie Group Ltd (ASX: MQG) is linked to two specific commodities with the broker sticking to its "buy" recommendation for most ASX miners under its coverage.

Coal and alumina on the nose

However, the two commodities that Macquarie thinks are under pressure are alumina and coal with its analysts making "material cuts" in their latest forecast update.

"The most material changes are 5% and 10% cuts to our alumina price forecasts for CY19 and CY20. Coking coal also suffers falling 5% in CY19 and 3% in CY20," said Macquarie.

"Our thermal coal price forecast also takes a hit, falling 6%. Other changes to bulk commodity and base metal prices largely reflect mark-to-market adjustments."

Most impacted miners

The more bearish estimates for alumina and coal seems to have hit South32 Ltd (ASX: S32) the hardest as the diversified miner is exposed to both these commodities.

"The cuts to our alumina and coking coal prices have weakened the earnings outlook for S32," said the broker.

"The stock is now offering free cash flow yields of ~6% for FY20 and FY21 and given the downside risk to consensus earnings we cut our rating to Underperform."

But South32 isn't the only stock in the sector to suffer a cut. The changes in the coal forecasts have also prompted Macquarie to lower its recommendation on the Whitehaven Coal Ltd (ASX: WHC) share price and New Hope Corporation Limited (ASX: NHC) share price.

"The reductions in our CY19 and CY20 coking coal prices and CY19 cut for thermal coal has weakened the outlook for both WHC and NHC," added Macquarie.

"We downgrade WHC to Neutral and NHC to Underperform due to the added uncertainty on the outlook for New Acland."

Gold still shining bright

Meanwhile, Macquarie sees value in the gold sector even though most of the ASX-listed gold miners have surged ahead of the broader market.

The outperformance of gold stocks has put the sector in the firing line of short-sellers but I too think it's too early to sell the sector.

Macquarie's top gold picks are Northern Star Resources Ltd (ASX: NST), Evolution Mining Ltd (ASX: EVN) and Saracen Mineral Holdings Limited (ASX: SAR).

Motley Fool contributor Brendon Lau owns shares of Evolution Mining Ltd. Connect with him on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Resources Shares

a sad looking engineer or miner wearing a high visibility jacket and a hard hat stands alone with his head bowed and hand to his forehead as he speaks on a mobile telephone out front of what appears to be an on site work shed.
Resources Shares

Down 14% in 2024, why is the BHP share price sliding again today?

ASX 200 investors are bidding down the BHP share price on Wednesday.

Read more »

A mining employee in a white hard hat cheers with fists pumped as the Hot Chili share price rises higher today
Resources Shares

These ASX 200 mining stocks could rise 40% to 50%

Analysts think these miners are dirt cheap at current levels.

Read more »

Image from either construction, mining or the oil industry of a friendly worker.
Resources Shares

Fortescue share price leaps 5% as electric machinery makes a milestone

Fortescue is charging ahead with its electric mining ambitions.

Read more »

rising mining asx share price represented by happy woman miner in hard hat
Resources Shares

Why the BHP share price crushed the benchmark this week

BHP shareholders enjoyed a rewarding week.

Read more »

A man wearing a hard hat and high visibility vest looks out over a vast plain where heavy mining equipment can be seen in the background.
Dividend Investing

Here is the profit forecast to 2026 for BHP shares

Let’s unearth how much profit this miner could make.

Read more »

Female miner standing next to a haul truck in a large mining operation.
Resources Shares

Is the worst of the selling now over for ASX iron ore shares?

ASX iron ore giants like BHP, Rio Tinto and Fortescue rebounded this week after falling hard in 2024.

Read more »

Three satisfied miners with their arms crossed looking at the camera proudly
Resources Shares

Why are ASX 200 mining shares smashing the benchmark on Wednesday?

Rio Tinto, BHP and Fortescue shares are all charging higher today.

Read more »

Two miners standing together.
Resources Shares

Why is the South32 share price getting battered today?

ASX 200 investors are bidding down South32 shares today.

Read more »