EFTA01385524.pdf

> Energy, Materials & Industrials Deutsche Bank (r) Glencore — Liam Fitzpatrick, BUY, close 391p, 430p tgt, 10% upside. ■ Strong organic growth from return of suspended capacity. Group We see the copper market moving further into deficit volume growth is c7% pa to 2020, vs. peers at 2-3%. Giving full value for suspended capacity yields a blue-sky valuation of >£5/share. 800 (kt) 4% min Surplus/(Defictt) - Suspended zinc production stands at 500 Ktpa - we have 600 3% —Surplus (Deficit) % of total demand 3% c90/320/400kt of volume growth in 2018-20 in our numbers. 400 2% - Also there is substantial suspended copper capacity. We have 8% YoY 2% 200 1% volume growth to 2020 in our numbers. 1% 0 - On copper, we are conservative given operational and country II I 0% -200 -1% (DRC/Zambia) risks, so the risks to our estimates are to the upside. -1% -400 • Right base metal exposure. We are structurally bullish on copper, zinc, -2% nickel and cobalt. -600 -2% 2010 2011 2012 2013 2014 2015 2016 2017e 2018e 2019e 2020e 2021e - We believe copper will remain in deficit in 2018, which should Source: Deutsche Bank. Industry data support the copper price increases. Our forecasts are 297c in 2018E and 315c in 2019E, putting us 10% ahead of consensus. Substantial volume growth to 2020E in zinc (below) and copper (8% p.a.) - Glencore's copper business is well-positioned on scale, margins and growth. 1600 (kt) 1500 • An EV play. Glencore is a longer-term structural winner of any shift to EVs 1400 given its strength in copper, cobalt and nickel. 1300 • Valuation is attractive at 2018 FCF yield of 14% at spot and 11% at our 1200 base case. 1100 in Catalysts: Copper prices/supply disruption, consensus upgrades, delivery 1000 900 against volume guidance 800 Related DB Research: 700 Glencore: Investor call —what did we learn? BUY case remains intact (Fitzpatrick) 600 European Mining 2018 Outlook: Upside remains: a guide to 2018 (Fitzpatrick' 2014 2015 2016 2017F 2018F 2019F 2020F Source Doutscho Bank. Industry data Deutsche Bank Research* European Equity Focus - Jartualy 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0086810 CONFIDENTIAL SDNY_GM_00232994 EFTA01385524