UBS picks the biggest winners in the mining sector from the...

UBS picks the biggest winners in the mining sector from the Russian sanctions
Brendon Lau | April 17, 2018 | More on: AWCBHP IGO OZL RIO S32 SFRWSA



It feels like 2018 will be hallmarked by a period of sanctions and tariffs as US President Donald Trump seeks to gain an upper hand against his overseas economic and political “frenemies”.

That is not good news for Australia on the whole but it does throw up some interesting opportunities for ASX investors.

You only need to look at the recent share price rally in our aluminium producers like Rio Tinto Limited (ASX: RIO), South32 Ltd(ASX: S32) and Alumina Limited (ASX: AWC) to see what I mean.

These stocks are the key beneficiaries from the jump in aluminium prices after Trump declared Russian aluminium producer Rusal and several individuals from that country as persona non grata. Rusal is a major global supplier of the metal and Russia accounts for around 6% of global supply.

If the US expands its sanctions to other Russian industries, we could see a similar outcome for other mining stocks!

There’s reason to believe this could happen too as tension between Russia and the West is escalating following the US-led coalition strike on Syrian targets on the weekend.

Trump may also want to show his tough stance against the traditional US enemy as investigations on Russian meddling into the US election that handed Trump the Oval Office draws uncomfortably close to him.

Any widening of sanctions will likely target industries that are significant to the Russian economy – otherwise why bother?

This means nickel and copper could be in the firing line as UBS estimates that Russia supplies 10% of nickel to the world and around 4% of copper.

A surge in nickel prices will leave a big grin on the faces of Western Areas Ltd (ASX: WSA) and Independence Group NL (ASX: IGO). Western Areas is a pure nickel miner while 40% of Independence Group’s revenue comes from that commodity.

Meanwhile, stocks that would benefit from a run in the copper price include Sandfire Resources NL (ASX: SFR), OZ Minerals Limited (ASX: OZL), Independence Group, BHP Billiton Limited (ASX: BHP) and to a lesser extent Rio Tinto Limited (ASX: RIO).

What if copper and nickel are added to the list with Aluminium? Based on the current spot prices, UBS sees a 151% increase in the net present value (NPV) of Alumina Limited, 114% increase in South32, 32% for BHP and 31% for Rio Tinto.

It’s all speculation at this stage but given the positive outlook for most commodities even before the Russian sanctions, this just gives investors another reason to feel bullish about the sector.