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When considering investments in the mining sector, two prominent names often come to mind: BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO). But are their shares currently in a favorable buying zone? Let's examine what analysts at Goldman Sachs have to say about these mining giants ahead of their upcoming quarterly updates.
According to Goldman Sachs, both BHP and Rio Tinto present attractive options for investors at the moment. While the broker slightly favors Rio Tinto, it still views BHP shares as offering a compelling risk/reward proposition. Investors seeking exposure to the mining sector on the Australian Securities Exchange (ASX) may also consider other ASX mining stocks, which offer diverse opportunities within the mining industry.
Goldman Sachs maintains a buy rating on BHP shares with a slightly adjusted price target of $49.20, indicating nearly 10% potential upside from current levels. Additionally, the broker forecasts fully franked dividend yields of 4.8% in FY 2024 and 4.3% in FY 2025, potentially delivering a total return of over 14% over the next 12 months.
The reasons cited by Goldman for liking BHP include its appealing valuation, strong growth prospects in copper and metallurgical coal, significant production growth opportunities, and robust free cash flow generation, albeit slightly below Rio Tinto.
On the other hand, Goldman Sachs maintains its buy rating on Rio Tinto shares with an improved price target of $140.20, implying a potential upside of 14% from current levels. Additionally, the broker forecasts fully franked dividend yields of 5.4% in FY 2024 and 5.7% in FY 2025, potentially offering a total return of over 19% over the next 12 months.
Goldman's reasons for favoring Rio Tinto include its compelling relative valuation compared to peers, attractive free cash flow and dividend yield, anticipated strong production growth driven by various factors including the ramp-up of the Oyu Tolgoi underground copper mine, recovery at Escondida and Bingham, and higher Pilbara iron ore shipments, as well as the potential for improved free cash flow per tonne in the Pilbara and its high-margin, low-emission aluminium business.
