The two biggest ASX mining shares on the Australian share market are BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO).
Unsurprisingly, when it comes to gaining exposure to the mining sector, these two miners are usually front of mind.
But which mining behemoth would be the best one to buy right now?
According to a note out of Goldman Sachs this morning, while the broker is positive on both, its analysts believe that investors should be buying Rio Tinto shares first.
Mining sector valuations looking very attractive
Goldman highlights that mining sector valuations are currently at very low levels based on historical multiples. As a result, this makes it an opportune time to invest in the sector. It said:
Global Mining sector at a discount to 25 year average: a review of the past 25 yrs of mining sector valuations shows the Top 20 global miners are currently trading below history on just ~4.5x NTM EV/EBITDA, well below the 25-yr historical average of 6.0x. This is despite strong balance sheets and FCF positions relative to the past few decades, and a strong long run fundamental outlook for commodities due to undersupply and new demand from decarbonisation.
With the sector trading at a discount, we see this current period as a particularly compelling buying opportunity for the major miners such as RIO (Buy, CL), BHP & S32.AX (both Buys).
Buy Rio Tinto shares ahead of BHP
If you have room in your portfolio, Rio Tinto and BHP, and even South32 Ltd (ASX: S32), would all be great additions right now according to the broker.
However, if you only have room for one mining share, Goldman thinks you should make it Rio Tinto.
It currently has a conviction buy rating and $130.70 price target on the miner's shares. This implies potential upside of 16% from current levels. The broker explained its preference for Rio Tinto, stating:
We continue to prefer RIO over BHP on valuation, FCF & balance sheet strength. For RIO, we expect operational turnaround in the Pilbara and copper (Oyu Tolgoi) driving higher Cu Eq growth over the next 2-years.
