Morgans names the ASX 200 mining shares to buy and sell

These are the mining shares to buy and sell according to Morgans…

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Mining workers in high vis vests and hard hats discuss plans for the mining site they are at as heavy equipment moves earth behind them, representing opportunities among ASX 200 shares as nominated by top broker Macquarie

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If you're wanting to invest in the mining sector, then the team at Morgans has got you covered.

This morning the broker released a note that reveals which ASX 200 mining shares it believes investors should buy and which they should sell.

Which ASX 200 mining shares are buys?

According to the note, the broker believes investors should be focused on cash flow right now.

With that in mind, Morgans believes BHP Group Ltd (ASX: BHP) and South32 Ltd (ASX: S32) are the best mining shares to buy.

It currently has an add rating and $47.40 price target on BHP's shares. Morgans said:

Attractive on its FCF & risk profile. Strong numbers and less 'can go wrong' relative to its div miner peers, mainly driven by its opex performance and capex profile.

As for South32, its top pick, its analysts have an add rating and $5.40 price target on its shares. The broker explained:

Lower margin than its Aussie iron ore peers but the strongest FCF yield on offer, with free cash flow on sale in a business that continues to make smart asset decisions as it shifts its portfolio.

The broker also rates Rio Tinto Limited (ASX: RIO) shares as a buy. It has an add rating and $108.00 price target on them.

Which are the shares to sell?

This morning, Morgans has become the latest broker to slap a sell rating on Fortescue Metals Group Limited (ASX: FMG) shares.

The note reveals that the broker has put a reduce rating on its shares and cut its price target down to $14.50. Morgans has warned that Fortescue's free cash flow could be heading to zero in the future. The broker said:

FMG looks in the most difficult position from an FCF perspective. While investing in decarbonising and green/renewable projects has real positives attached, there is no disputing the capital-intensive nature of such spending and decade+ payback profile (we estimate c2034 in FMG's case). While FMG is doing meaningful things that do add to its ESG profile, that helps our investment view, it also puts it at a distinct FCF disadvantage on our estimates to its local peer group for the next decade.

Consensus is bearish but still has not factored in all the capex coming from decarb (now guided) and mine/hub replacement. FCF could be heading to zero for 7-8 years.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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