8 ASX miners Morgan Stanley is overweight

The materials sector has taken a hit in recent months amid renewed worries about the strength of the global economy. There remain pockets of opportunity, however, with certain commodities and certain stocks faring better than others.  

Morgan Stanley (MS) recently published a research note providing a quarterly preview of their stocks in coverage. Below is a summary of the eight stocks they currently rate as OVERWEIGHT. 

South32 (ASX: S32)

Rating: Overweight
Last price: $3.43 (last price as at close 10 October 2023)
Target price: $4.15

Thesis: Morgan Stanley sees S32 assets as “well positioned in the global cost curve” and adds that the company is generating significant cash and undertaking buybacks.

Upcoming quarter: “Updates on FID for Taylor deposit (Hermosa project) expected in 2QFY24. At Sierra Gorda we expect to see the mill running at 48-89Mtpa in 1QFY24 from the completed de-bottlenecking project. Furthermore, we could see an update on the FS for the fourth grinding line (lift rates to 57-58Mtpa)”.

Whitehaven Coal (ASX: WHC)

Rating: Overweight
Last price: $6.72
Target price: $7.75

Thesis: MS views WHC as “cheap” with FY24e EV/EBITDA of 2.4x. It is also looking for support in the thermal coal price ahead of the European winter, which would provide a boost.

Upcoming quarter: “Updates on Vickery light and the potential acquisition of BHP's Daunia/Blackwater coal mines”.

The Vickery Extension Project (Vickery) is a proposal to construct an open-cut coal mine and associated on-site infrastructure about 25 kilometres north of Gunnedah. The mine will produce a majority of metallurgical coal for steel-making, with the balance being high-quality thermal coal destined for premium export markets in our region.

Rio Tinto (ASX: RIO)

Rating: Overweight
Last price: $112.20
Target price: $135

Thesis: MS likes Rio’s balance sheet, highlighting that it gives the company flexibility to pursue growth options/acquisitions, or hand cash back to shareholders.

Upcoming quarter: “Updates for Nammuldi, where one mine was taken offline due to a rock fall at a nearby heritage site. Focus on ramp-up progress of OT, Gudai Darri, and Robe Valley, in addition to the recovery at Kitimat and Boyne ally smelters along with the smelter rebuild at Kennecott Cu”.

29Metals (ASX: 29M)

Rating: Overweight
Last price: $0.65
Target price: $0.85

Thesis: MS notes that “29M has guided on a restart timeline at Capricorn Copper which has the potential to be faster than expected”. MS adds that the concerns around the company’s balance sheet have been resolved following the recent capital raise.

Upcoming quarter: “Having recently moved from equal weight to OVERWEIGHT, we focus on the Capricorn Copper restart and updates to insurance claims. We also focus on the commissioning of the XE booster fans; these are crucial for 2H zinc production”.

Regis Resources (ASX: RRL)

Rating: Overweight
Last price: $1.61
Target price: $1.95

Thesis: MS is looking at the upcoming McPhillamy's study as a potential catalyst for the company. It also expects RRL to generate high free cash flow yields of 4-5% for FY24e.

Upcoming quarter: “Updates on the McPhillamy's Feasibility Study (FS) due for Final Investment Decision (FID) in FY24.”.

Evolution Mining (ASX: EVN)

Rating: Overweight
Last price: $3.56
Target price: $4.35

Thesis: MS believes the underperformance at Red Lake could now be a thing of the past. If that is the case, then EVN’s guidance around Red Lake could be “conservative”. MS is eyeing potential production and grade beats.

Upcoming quarter: “Lookout for the paste fill plant operating at full capacity in 1Q as this is crucial for Cowal UG sustainability. Red Lake should see QoQ higher gold production on grades from Upper Campbell."

Deterra Royalties (ASX: DRR)

Rating: Overweight
Last price: $4.75
Target price: $5.50

Thesis: MS notes that Deterra's earnings primarily come from Mining Area C (MAC), which is DRR’s cornerstone asset.

Operated by BHP, MAC will form the largest operating iron ore hub in the world, producing 145 million tonnes of iron ore each year when the recently completed South Flank expansion reaches full production.

MS adds that MAC is “a first quartile iron ore asset with higher grade and premium iron ore products”. MS expects that these premium products will perform better than lower grade products.

Upcoming quarter: “We await updates on both Huntly and Willowdale mine plans which are subject to MMPLG and EPA processes”.

Alumina Limited (ASX: AWC)

Rating: Overweight
Last price: $0.945
Target price: $1.40

Thesis: MS points out that “AWAC's first-quartile cost curve position keeps the company profitable through the cycle”. It adds that such a position means there is limited financial risk through the cycle, despite the volatility in commodities.

Upcoming quarter: No quarterly outlook provided.