STOCKS NEWS EUROPE-Glenstrata tops resurgent miners - Jefferies

Thu Jan 10, 2013 6:33am EST

A recovering global economic outlook and the return of demand to China should support quality metals and mining firms in 2013, according to Jefferies, with a merged "Glenstrata" the brokerage's top pick for the sector.

"After having been cautiously optimistic for most of 2012, we have become much more positive on the fundamental outlook for the mining sector in recent months," analysts at Jefferies write in a note.

Miners have added 17 percent since mid-November as encouraging data out of China has supported a sector that underpeformed for much of last year.

In a review of the metals and mining sector, Jefferies raises the target price for 7 out of 13 UK-listed firms, including Anglo-American, BHP Billiton, Kazakhmys, Rio Tinto and Vedanta.

However it is the company that will be formed when Glencore merges with Xstrata that Jefferies favours the most, raising the price targets for the companies individually and seeing a differentiated approach as leading to a premium valuation for the new stock.

Xstrata's price target is raised to 1,350p from 1,250p, while Glencore sees its target price upped to 450p from 430p.

"We expect the merged company to deliver synergies well above guidance and to aggressively cut capex spending so that it can grow its dividend much more aggressively than the market expects," the note says.

Reuters messaging rm://alistair.smout.thomsonreuters.com@reuters.net

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