Goldman Sachs says BHP shares are heading to $50

Iron ore prices may be higher than expected in 2024.

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BHP Group Ltd (ASX: BHP) shares are climbing on Wednesday.

At the time of writing, the mining giant's shares are up approximately 2% to $46.91.

This means the Big Australian is outperforming slightly on a very strong day for the ASX 200 index, which is up currently 1.5% to 7,112.4 points.

Can BHP shares keep rising?

The good news is that one leading broker believes there are more gains to come for shareholders.

In fact, according to the note out of Goldman Sachs, it suspects that BHP's shares could be heading towards the $50 mark again thanks to stronger-than-expected iron ore prices.

Commenting on iron ore prices, the broker revealed that it expects a supply deficit in 2023 and a supply balance in 2024 to keep prices higher. It explains:

Iron ore price has continued to outperform vs. expectations in 2023. The GS commodity team now expect the global seaborne iron ore market to register a ~40Mt deficit in 2023 (previous 9Mt surplus), driven by outperforming Chinese steel production underpinned by resilient infrastructure and less drag from property, sustained steel export strength and restrained scrap-based EAF output, even while China's steel demand remained in clear contraction.

This has been set against disappointing iron ore supply performance from both Australia and Brazil and the path to 2024 now points to a balanced market versus previous surplus. We now expect a more modest contraction in China steel demand next year (GSe -1% y/y vs. -3% y/y this year). As a result, the GS commodity team have upgraded their 62% Fe price forecasts for 2023 to US$117/t (from US$101/t) and for 2024 to US$110/t (from US$90/t), with new 3/6M targets of US$130/US$120/t signaling modest upside relative to the forward curve.

BHP valuation increased

The note reveals that Goldman has reiterated its buy rating on BHP's shares with an improved price target of $49.90.

Based on its current share price, this implies approximately a 6.5% upside from current levels.

But the returns won't stop there. In addition, the broker is forecasting the equivalent of a fully franked $2.19 per share dividend in FY 2024. This equates to a 4.7% dividend yield, boosting the total potential return to approximately 11%.

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 positions in and has recommended Goldman Sachs Group. 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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