Citi Research on Monday upgraded Anglo American and Teck Resources to Buy, saying the two miners' proposed combination and the consequent increase in copper exposure underpin materially stronger valuations for the pair.
For Anglo American, Citi moved its rating from Neutral to Buy and set a new target price of £45. That target implies a 32% upside from the stock's last close at £34.08, according to Citi's math.
At the same time, the brokerage upgraded Teck Resources from Neutral to Buy and raised its target for that company to C$104, up from C$76 previously - an increase of 38.6%. Citi said the two Buy ratings reflect a consistent valuation treatment under the terms of the announced merger.
Under Citi's framework, the two firms would be combined into a new listed company that Citi refers to as "AngloTeck." The group would be heavily weighted toward copper, with roughly 80% of earnings exposure tied to that metal. Citi projects the merged business would produce about 1.2 million to 1.3 million tonnes of copper, which would place it among the three largest listed copper producers globally on a production basis.
Using a sum-of-the-parts approach, Citi assigns a pro forma valuation of £50 per share to the combined entity. Within that framework, the copper division alone is valued at more than £40 per share - a figure Citi notes sits above Anglo American's current share price.
Citi also quantified potential consolidation benefits and asset recoveries. The brokerage estimated potential synergies of about $800 million, which it said could translate into roughly £2.6 per share of additional value. In addition, Citi highlighted an expected operational normalization across three major assets that could contribute about $1.2 billion in incremental EBITDA - equivalent, on Citi's calculations, to £4.6 per share in net present value.
"The current share price undervalues AAL’s earnings potential from its existing copper exposure," Citi said in its note.
Beyond copper, Citi noted that the remaining businesses - including iron ore and zinc - would be sufficient to cover net debt and minority interests in its pro forma balance. The brokerage also incorporated a proposed pre-merger dividend into its valuation framework, pointing to a £1.8 per share dividend intended for Anglo American shareholders ahead of the transaction.
On Teck Resources, Citi said the upgrade is consistent with the same valuation logic it applied to Anglo American. The analysts made clear that their Buy rating on Teck is aligned with the Buy on Anglo American assuming the merger moves forward on the announced terms, and that there were no changes to Teck's standalone estimates relative to their prior view.
Looking at a pro forma earnings outlook, Citi projects the combined business could generate about $15.6 billion of EBITDA in 2027. Based on its valuation assumptions, the merged group would trade at an implied multiple of about 6.2 times EBITDA - a multiple Citi says sits below the current trading range for global copper equities, which it places between 8 and 10 times EBITDA.
Finally, Citi identified Anglo American as its top pick among global diversified miners under this framework, reflecting the brokerage's view of the upside embedded in Anglo American's copper exposure and the potential benefits of the proposed combination.
Readers should note that Citi's revised ratings and targets are contingent on the merger proceeding on the currently announced terms and that the valuation metrics and per-share contributions reflect Citi's internal sum-of-the-parts and synergy assumptions as described above.