Now could be the time to buy BHP Group Ltd (ASX: BHP) shares.
That's the view of analysts at Goldman Sachs, which have just reaffirmed their buy rating on the mining giant.
What is the broker saying about BHP and its shares?
Goldman has just attended BHP's investor tour of the Escondida and Spence copper mines in Chile.
It notes that 10 projects were outlined costing potentially up to US$15 billion and are designed to offset 400kt of copper depletion. This includes an increase in concentrator throughput at Escondida by >10% and the application of new leaching technologies to fill spare cathode capacity.
Goldman notes that overall growth capex and project returns were broadly in-line with its estimates.
This is ultimately expected to lead to BHP's copper production increasing slightly over the next decade, excluding acquisitions. It said:
[B]ased on our modeled projects we estimate that BHP's copper production will increase modestly from 1.9Mt in FY25 to ~2.1Mt by 2034/35, with group production growing by just ~1% p.a through 2024-2035E in Cu Eq terms.
The broker does see scope for further growth from as yet unsanctioned projects. It adds:
Unsanctioned growth from Josemaria & Filo Del Sol (FDS), Resolution, and Oak Dam could boost BHP's copper production by ~20% to ~2.6Mt by 2034/35 and group production from 1.0% to 1.8% p.a.
The good news is that Goldman feels that BHP's balance sheet is well-positioned to cope with the sizeable investments required to fund its copper business. It said:
With all copper growth, and all already assuming some phasing of projects, we see group capex peaking at ~US$15bn and net debt at ~US$20bn. However, we believe the balance sheet is strong and that gearing and leverage are more appropriate balance sheet metrics.
Time to buy
In light of the above, the broker remains positive on BHP and sees value in its shares.
According to the note, it has retained its buy rating with a slightly improved price target of $47.40.
Based on its current share price of $40.72, this implies potential upside of 16.4% for investors over the next 12 months.
In addition, Goldman Sachs is forecasting a 99 US cents per share dividend in FY 2025. This equates to A$1.53 at current exchange rates and a dividend yield of 3.75%.
In total, this means that a potential return of approximately 20% could be on offer from BHP shares according to Goldman. It concludes:
BHP is currently trading at ~5.8x NTM EBITDA, below the 25-yr average EV/EBITDA of 6.5-7x, but at a premium to RIO on ~5.0x; but at ~0.8x NAV which is in-line with RIO at ~0.8x NAV. Over the last 10 years, BHP has traded at a ~0.5x premium to global mining peers. We believe this premium can be partly maintained due to ongoing superior margins and operating performance (particularly in Pilbara iron ore where BHP maintains superior FCF/t vs. peers).
