Goldman Sachs is long on miners, saying markets are pricing some of the market\u2019s biggest players at prices well below spot and long term commodity forecasts
\nThe top 20 miners globally are now trading at 5.5x earnings, down from a 6x multiple they\u2019ve averaged over the past 25 years
\nSome big stocks could present value \u2026 especially if they take a hit on short term concerns in the upcoming quarterly reporting season<\/p>\n
Goldman Sachs has raised the ire of plenty of bag holders in recent times, sinking the boot into lithium prices with a sense of doom that turned out to be \u2026 appropriately cautious.<\/p>\n
But its conviction in mining as an investment remains strong, saying a hit taken by the big miners so far this year has put them \u2018back in value territory\u2019.<\/p>\n
That bullishness is particularly pronounced in the diversified miners, where analysts Paul Young, Caleb Heiner and Hugo Nicolaci say iron ore, met coal, copper and aluminium prices will power gains.<\/p>\n
They think:<\/p>\n
Iron ore has bottomed out in the vicinity of US$100\/t after tumbling from over US$140\/t at the start of the year \u201con seasonal supply\/demand factors such as an expected modest pick-up in Chinese construction activity over April-May and constrained supply out of Australia and Brazil.\u201d
\nMet coal \u201cis good value at US$250\/t based on supply\/demand dynamics underpinned by Indian demand and a slow recovery in Australian exports.\u201d
\nAnd green demand will see more than 10% lifts in copper and aluminium to US$4.50\/lb and US$1.20\/lb respectively.<\/p>\n
Goldman say the mining sector is now \u2018broadly attractive\u2019, having sunk 6.2% this year so far against a 5.3% climb for the ASX 200 up to the end of March.<\/p>\n
They think stock prices are now valuing in commodity prices well below both spot and long term forecasts.<\/p>\n
That includes US$66\/t and US$71\/t for iron ore for BHP (ASX:BHP)<\/a> and Rio Tinto (ASX:RIO)<\/a>, US$230\/t alumina in South32 (ASX:S32) against Goldman\u2019s long run forecast of US$340\/t, Champion Iron (ASX:CIA)<\/a> pricing in a US$71\/t iron ore price and Iluka Resources (ASX:ILU)<\/a> pricing in NdPr price of just US$40\/kg and zircon price of US$1000\/t.<\/p>\n Rare earths producer Lynas (ASX:LYC)<\/a> is closer to spot prices, coming in at US$60\/kg NdPr, while Coronado (ASX:CRN)<\/a> is factoring in a met coal price of just US$170\/t.<\/p>\n On the flipside, Goldman sees Mineral Resources (ASX:MIN)<\/a> and Fortescue (ASX:FMG) <\/a>as more fully valued at US$100\/t and US$93\/t iron ore, New Hope (ASX:NHC)<\/a> at US$100\/t thermal coal and Sandfire Resources (ASX:SFR)<\/a> at US$4.70\/lb copper.<\/p>\n \u00a0<\/p>\n Young and his crew believe Rio and BHP are trading well below their historical average of 6-7x earnings, trading at 4.5x and 5.5x respectively, while South32 at 3.1x is below its long term average of 4.9x.<\/p>\n They say the top-20 miners globally are trading at 5.5x EBITDA, south of the 25 year historical average of 6x.<\/p>\n Goldman remains bearish on lithium, saying that even with 153,000t of incremental supply cuts a 150,000t surplus equalling 11% of global demand will still pervade in 2024 and cause pricing to eat into the cost curve.<\/p>\n Carbonate futures have been rising in recent days along with spodumene concentrate spot prices, but GS recently lowered its 12 month Chinese carbonate chemical price to US$10,000\/t.<\/p>\n OK, so that\u2019s the dire stuff.<\/p>\n On the flip side, GS says China\u2019s commodity demand data looks decent for aluminium and copper, up 17% and 12% year on year to the end of February.<\/p>\n \u201cThis demand support has coincided with an increasing supply bind from sharply reduced mine supply, underpinned by low investment and fast approaching peak supply,\u201d Young, Heiner and Nicolaci said.<\/p>\n \u201cGoing forward, the mine supply shock currently at play in the copper market and the impact from China\u2019s capacity cap on aluminium supply, both frame a materially tighter balance path for these metals in 2024 versus 2023.<\/p>\n \u201cWith visible inventory levels at near multi-year lows for most industrial metals, we see little buffer in the system to limit greater competition for units and stickier upside ahead.\u201d<\/p>\n They reckon there\u2019s cost curve support for alumina with around 5% of supply \u2014 equivalent to five refineries \u2014 losing money at current prices.<\/p>\n Goldman continues to see iron ore prices averaging US$105-110\/t for the rest of 2024 with a preference for high grade supply longer term amid a global decarbonisation push.<\/p>\n While a weak Chinese property sector has seen steel production disappoint and inventory build (MySteel sees port stocks hitting 150Mt by the end of July)<\/a>, GS thinks the June quarter will bring more supportive demand from Chinese steelmakers.<\/p>\n \u00a0<\/p>\n March quarter reporting season is nigh and Goldman is, understandably, positive on the diversified majors heading into the quarter given its conviction on value opportunities in the sector.<\/p>\n There\u2019s not guarantee they\u2019ll be winners in the short term and there could be disappointments. Early shipping data on the big three iron ore producers suggests their March output will be well down on numbers from a year earlier, GS noted.<\/p>\n \u201cPilbara iron ore shipments data (see Exhibit 20 & Exhibit 21) shows a weaker March Q than prior years; RIO (-12% QoQ and -9% YoY) and FMG (-9% QoQ, -5% YoY. GSe 190Mt for \u201cQld coal port data implies ongoing challenges for BHP\u2019s & CRN\u2019s met coal shipments in the March Q due to ongoing wet weather impacts and high waste stripping programs.\u201d<\/p>\n South32 was also impacted by a cyclone that shut its GEMCO manganese operations in the NT. That could create buying opportunities if shareholders punish the miners on short term impacts.<\/p>\n \u201cPotential weak quarterlies from Buy rated stocks where we would see share price weakness as an increased buying opportunity are; RIO & BHP (weak Pilbara shipments), S32 due to a recent cyclone impacting Aus manganese production and wet weather impacting Cannington zinc\/lead concentrate shipments, CIA due to negative provisional pricing impacts and scheduled maintenance at Bloom Lake and cold weather, and CRN due to wet \u201cWe expect ILU to have a positive Q with GSe revenue of ~A$330mn above Visible Alpha Consensus Data of ~A$305mn due to higher zircon shipments.\u201d<\/p>\n It is sell rated on FMG, MinRes and New Hope, with buy ratings on Lynas, Iluka, Champion Iron, Coronado, South32, BHP, Rio Tinto and BlueScope Steel (ASX:BSL).<\/a><\/p>\n \u00a0<\/p>\n <\/span>\u00a0 The post Goldman Sachs says big miners are big value with upside in iron ore, coal and copper<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"How undervalued are those big miners really?<\/h2>\n
Who are buys and sells heading into reporting season<\/h2>\n
\nFY24 vs. guidance of 192-197Mt), but relatively better for BHP (-5% QoQ &
\nunchanged YoY),\u201d Young, Heiner and Nicolaci said. <\/p>\n
\nweather,\u201d GS\u2019 Aussie resources team say.<\/p>\nGoldman Sachs diversified and bulk miner coverage<\/h2>\n\n
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