Goldman Sachs has turned increasingly negative on the mining sector, downgrading BHP Billiton to “sell” and slashing its target price for Rio Tinto in the face of falling iron ore prices and what it sees as China’s potential to restrict credit.
In a report out of London yesterday, Goldman analysts led by Eugene King told investors they should sell BHP and London-listed miners Antofagasta and Kumba.
The bank kept its neutral rating on Rio but still slashed its target price for the miner’s London shares by 20 per cent to £28. It cut its target price for BHP’s London shares by 21 per cent to £11.
Rio closed Monday trading in London at £30.88 and BHP closed at £12.01, with both stocks down about 16 per cent in the past two months. “After a strong 12 months, and despite continued strong Chinese economic data for the March quarter, mining equities have started to underperform,” Goldman said.
In November, Goldman adopted a more positive stance on the sector, which it now said it was reversing. “A key underlying assumption (in November) was that commodity prices would taper slowly, supporting cash flows, resulting in lower net debt,” Goldman said.
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