The mining sector has been a great place to invest this year. Thanks to rising commodity prices, mining shares have been charging higher while other areas of the market go backwards.
The good news is that it may not be too late to invest in the sector according to Goldman Sachs.
It has been looking at the resources sector again this week and has given its verdict on a number of shares. Here are three that Goldman rates as buys:
Rio Tinto Limited (ASX: RIO)
According to the note, Goldman Sachs has a buy rating and $136.40 price target on this mining giant’s shares. Its analysts like Rio Tinto due to its strong free cash flow generation and production growth potential.
It said: “We are Buy rated on RIO discounting a long run iron ore price of US$64/t (vs. GSe long run of US$70/t real) and trading on a FCF yield of 15% in 2022E (based on our US$129/t Fe forecast for 2022). We think RIO has had a challenging March Q in the Pilbara due to equipment and labour shortages impacting 90Mtpa of iron ore replacement project tie-ins, but we believe RIO will turn the corner and return to production growth in mid-2022 on higher iron ore and copper volumes.”
South32 Ltd (ASX: S32)
South32 shares could also be in the buy zone according to Goldman Sachs. Its analysts have a conviction buy rating and $5.80 price target on the miner’s shares. The broker likes South32 due to its base metal exposure, which it expects to underpin significant earnings and free cash flow.
Goldman said: “We are Buy rated on S32.AX (on CL) with strong FCF (17% base case for FY23), exposure to base metals (75% EBITDA; aluminium & alumina c. 50% of FY23 EBITDA, copper c.10 %, zinc/nickel c. 20%), and with 7%/3% Cu Eq production growth in FY22/FY23 driven by; ~30% or c. 280ktpa increase in aluminium production from the Alumar restart & c. 17% increase in Mozal stake, creep in nickel from Cerro Matoso and lead/zinc/silver from Cannington, and the Sierra Gorda copper acquisition.”
Whitehaven Coal Ltd (ASX: WHC)
A final ASX 200 mining share that has been named as a buy is this coal miner. Goldman believes Whitehaven Coal is well-placed to benefit from very strong coal prices. The broker has a buy rating and $5.30 price target on its shares.
Its analysts commented: “The already tight global coal markets have the potential to be further impacted with the Russia-Ukraine situation putting Russian coal exports at risk based on possible sanctions and “self-sanctioning” by European & Asian utilities and steel mills, in our view. […] We remain Buy rated on WHC trading at a ~15% discount to our NAV & c. 50/20% FCF yield in FY22/FY23. WHC is a compelling de-gearing and capital returns story in our view.”