Europe United Kingdom
Metals & Mining
9 January 2009
Metals & Mining
Base jumping into '09 -
Est/TP/Rating changes
Rob Clifford
Research Analyst
(44) 20 754 58339
robert.clifford@db.com
More downside for base metals in 2009
With a global GDP "Growth" expectation of just 0.1% for 2009, our commodities
team have downgraded base metal price expectations, leading us to downgrade
our earnings expectations for a number of the miners. The plummeting prices
have dropped expectations for miner earnings and in the process made them
more leveraged and more at risk of cash flow issues. Volatility will offer
opportunity for watchful investors this year - we advocate exposure to strong
balance sheets or oversold stocks - BHP, ENRC and Xstrata are our top picks.
Deutsche Bank AG/London
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Forecast change
Top picks
BHP Billiton Plc (BLT.L),GBP1,292.00 Buy
Xstrata (XTA.L),GBP880.50 Buy
ENRC PLC (ENRC.L),GBP375.00 Buy
Companies featured
Anglo American (AAL.L),GBP1,623.00 Hold
2007A 2008E 2009E
DB EPS (USD) 4.34 5.29 2.18
P/E (x) 13.2 4.7 11.3
Antofagasta PLC (ANTO.L),GBP460.00 Sell
2007A 2008E 2009E
DB EPS (USD) 1.40 0.73 0.25
P/E (x) 8.9 9.5 27.8
BHP Billiton Plc (BLT.L),GBP1,292.00 Buy
2008A 2009E 2010E
DB EPS (USD) 2.73 2.12 1.81
P/E (x) 12.0 9.2 10.8
Boliden AB (BOL.ST),SEK21.50 Sell
2007A 2008E 2009E
DB EPS (SEK) 13.37 1.56 -0.01
P/E (x) 10.4 13.8 –
ENRC PLC (ENRC.L),GBP375.00 Buy
2007A 2008E 2009E
DB EPS (USD) 0.96 2.11 0.39
P/E (x) 12.9 2.7 14.5
Ferrexpo Plc (FXPO.L),GBP34.00 Sell
2007A 2008E 2009E
DB EPS (USD) 0.20 0.53 0.10
P/E (x) 21.4 1.0 4.9
Kazakhmys PLC (KAZ.L),GBP261.00 Hold
2007A 2008E 2009E
DB EPS (USD) 3.04 2.56 -0.03
P/E (x) 8.3 1.5 –
Lonmin Plc (LMI.L),GBP1,059.00 Hold
2008A 2009E 2010E
DB EPS (USD) 2.30 -1.01 -0.17
P/E (x) 27.1 – –
Rio Tinto (RIO.L),GBP1,730.00 Hold
2007A 2008E 2009E
DB EPS (USD) 5.53 9.40 4.61
P/E (x) 13.3 2.8 5.7
Norsk Hydro (NHY.OL),NOK29.75 Hold
2007A 2008E 2009E
DB EPS (NOK) 6.09 3.58 0.88
P/E (x) 11.6 8.3 33.7
Nyrstar NV (NYR.BR),EUR2.50 Hold
2007A 2008E 2009E
DB EPS (EUR) 3.23 0.34 -0.73
P/E (x) 5.1 7.3 –
Vedanta Resources (VED.L),GBP705.00 Hold
2008A 2009E 2010E
DB EPS (USD) 2.95 1.45 0.01
P/E (x) 12.6 7.4 –
Xstrata (XTA.L),GBP880.50 Buy
2007A 2008E 2009E
DB EPS (USD) 5.63 4.13 1.25
P/E (x) 10.4 3.2 10.6
Global Markets Research Company
Low prices for low growth
This review incorporates the commodity team revisions to base metal price
forecasts, gold and PGM prices and gas prices. Of particular note we have
downgraded our 2009 copper price expectation by -32.5% to US127.5c/lb and our
2009 aluminium price expectation by 26% to US63c/lb. Conversely we have
upgraded our 2009 gold and platinum price expectations by 22% and 9.5% to
US$914/oz and US$1013/oz respectively. Our Bulk commodity price assumptions
remain unchanged from our review in December. The recent rally in equity prices
since December (some mining stocks have doubled) and moderating Price targets
as a result of these commodity assumption changes has led us to downgrade a
number of recommendations – in particular, we have downgraded RIO, VED, AAL
from Buy to Hold and ANTO from Hold to Sell.
Cuts: earnings, capex, spending, people… certainty
We have witnessed some extraordinary behavior from the miners over the last few
months in response to the demand freeze. Miners have been rolling out emergency
plans to curb high cost production and reduce capex and in doing so have reduced
growth outlooks, team sizes and certainty for their own staff and investors alike. Of
note in the next 6 months will be how quickly these proposals can be effected and
particularly whether the miners’ claims that rising costs over the last few years have
be managed in such a way as to ensure they are not baked in. This report changes
ratings, price targets, and estimates for several mining companies under our
coverage (details in Figure 1 on page 3).
Chase cash flow certainty
The current economic environment will increase cashflow risks for the miners and
increase volatility in the share prices. Particularly at risk will be dividends, growth
and dilution and we believe that the market will reward stocks that show the most
robustness in these areas. Volatility in share prices will be driven by volatility in
earnings expectations from rapidly moving commodity prices, sovereign
intervention as governments try to stimulate growth and simply by the fact that
reduced margins mean greater leverage to changes in prices and costs. Out of the
uncertainty will come opportunity in our opinion with the doubling of many stocks
since December evidence of this. We advocate that investors be watchful for
short-term opportunities (the current over-buying over copper at the moment is
one such example in our opinion) however our key picks reflect stocks where we
see either low chance of cash flow issues, significant misdirected over selling or
both. At this point, BHP Billiton, Xstrata and ENRC are our top picks of the UK
miners.

Table of Contents
Let’s cut to the chase ........................................................................ 3
Earnings and PTs hit..................................................................................................................3
Commodity review............................................................................ 5
Industrial Metals........................................................................................................................9
Precious Group Metals ...........................................................................................................14
The bulks................................................................................................................................16
Economy even slower ..................................................................... 21
Fiscal measures to stimulate demand ....................................................................................21
Equities summary............................................................................ 22
The performance score board to date – looking in the rear-view............................................26
Production cuts and capital preservation ................................................................................27
Sensitivities............................................................................................................................29
Earnings calendar of coverage universe for the half .................... 30
Anglo American ............................................................................... 31
Antofagasta...................................................................................... 33
BHP Billiton ...................................................................................... 35
Boliden.............................................................................................. 37
ENRC................................................................................................. 39
Ferrexpo Plc ..................................................................................... 41
Kazakhmys ....................................................................................... 43
Lonmin.............................................................................................. 45
Norsk Hydro ..................................................................................... 47
Nyrstar.............................................................................................. 49
Rio Tinto ........................................................................................... 51
Vedanta Resources.......................................................................... 53
Xstrata .............................................................................................. 55