Guess Who Just Upgraded BHP Shares to a Buy Rating?

BHP Group Ltd (ASX: BHP) shares have just found a new bull. According to Goldman Sachs, investors should be snapping up the Big Australian's shares before it's too late.

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Who Is Bullish on BHP Shares?

The broker in question is none other than Goldman Sachs. According to a note from the investment bank, its analysts have reinstated coverage on the mining giant with a buy rating and a $49.00 price target. Given the current BHP share price of $44.05, this implies a potential upside of 11.2% for investors over the next 12 months. But that’s not the end of the returns. Goldman Sachs is also forecasting fully franked dividend yields of 4.9% in FY 2024 and 4.3% in FY 2025. This stretches the total potential 12-month return from BHP shares to around 16%.

Why Should You Invest in BHP?

Goldman Sachs has identified several compelling reasons why it believes investors should be considering the ASX mining shares today.

Attractive Valuation

One of the key points highlighted by Goldman Sachs is BHP's attractive valuation. They stated:

 "BHP is currently trading at ~6.0x NTM EBITDA (25-year average EV/EBITDA of 6.6x), a slight premium to RIO on ~5x; both are trading at ~0.9x 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)."

This valuation places BHP at a favorable position compared to its peers, underscoring the company's robust financial health and operational efficiency.

Exposure to Copper

Another significant factor driving Goldman's bullish stance on BHP is its exposure to copper. The broker added:

 "We remain bullish on copper and expect BHP to generate US$6.8bn in copper EBITDA in FY24 (27% of EBITDA) and almost doubling to US$11.5bn in FY25 (41% of EBITDA) due to ongoing supply side challenges and increasing demand."

Copper is increasingly seen as a critical metal for the future, driven by the global push towards green energy and electric vehicles. BHP's strong position in this market places it in a prime spot to benefit from these trends.

Growth Opportunities in Copper

Despite a recent failure to acquire Anglo American (LSE: AAL), Goldman Sachs highlights BHP's significant growth opportunities in copper. The firm stated:

"We continue to believe that BHP's major opportunity is growing copper production in Chile at Escondida and Spence, and growing production and capturing synergies in South Australia between Olympic Dam and the previous OZL assets. We think BHP has a competitive edge in copper heap leaching and believe it can potentially fill ~200ktpa of spare cathode capacity by 2030 and possibly the full ~315ktpa spare capacity by 2035."

This underscores BHP's strategic initiatives to expand its copper production, leveraging its technological and operational expertise.

Superior Margins and Operational Performance

BHP’s superior margins and operational performance, particularly in Pilbara iron ore, are another reason Goldman Sachs is optimistic about the company's future. The firm maintains that BHP has superior free cash flow per tonne compared to its peers, which is a testament to its efficient operations and cost management.

With a combination of an attractive valuation, strong exposure to copper, and significant growth opportunities, BHP Group Ltd stands out as a compelling investment opportunity. Goldman Sachs’ bullish stance and the potential for a 16% return over the next 12 months make it clear why investors should consider adding BHP shares to their portfolios.