Are you wondering whether to buy BHP Group Ltd (ASX: BHP) or Rio Tinto Ltd (ASX: RIO) shares for mining sector exposure?
Well, the good news is that the team at Goldman Sachs believes both mining giants are quality options right now.
Though, the broker does prefer one over the other. Let's take a look at what its analysts are saying about these leaders.
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What is the broker saying?
Goldman has been looking at the Escondida copper operation in Chile which is co-owned by BHP (57.5%) and Rio Tinto (30%). It notes that the operation has been expanded nine times since first producing copper all the way back in 1992.
Goldman expects a 10th expansion to occur in the coming years, supporting stronger-than-expected copper production growth. In fact, the broker believes the increase in production is going to be well ahead of consensus estimates. It explains:
BHP recently guided to a ~10% increase in copper production in 2025/2026 to 1.2-1.3Mt, but also outlined numerous project options to expand processing throughput to offset an expected drop in head grade and copper production to ~1Mtpa (GSe) from 2027.
The broker also highlights that the economics are compelling for the expansion. It adds:
While we already include the Escondida expansion in our base case for BHP & RIO, we have analysed the Escondida expansion options from a NPV & IRR perspective, and conclude the economics are compelling, and BHP would benefit from pushing ahead with an expansion of both the concentrator and heap leach capacity. We also highlight that Visible Alpha Consensus Data appears not to include the expansion as consensus 2030 production is ~200kt below GSe and 2025-2030 copper division capex is a collective ~US$10bn below GSe.
BHP or Rio Tinto shares?
In light of the above, this morning the broker has reiterated its buy ratings on both BHP and Rio Tinto shares with price targets of $45.80 and $125.20, respectively.
And while the broker would gladly buy both miners, it has named Rio Tinto shares as its preferred pick on valuation grounds. It explains:
We are Buy rated on both BHP and RIO (on CL) but prefer RIO on valuation and better medium-term Cu Eq production growth and FCF. GS remains positive on copper, and we believe that if a brownfields expansion of the world's largest copper mine requires an incentive price of US$3.6/lb, this underpins our above consensus long run price of US$4.3/lb.
