If you're looking for exposure to the mining sector, then South32 Ltd (ASX: S32) shares could be worth considering.
That's because one leading broker has just reiterated its buy rating on the mining giant's shares and is tipping big returns over the next 12 months.
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Who is bullish on South32 shares?
The broker is question is Goldman Sachs. This morning, its analysts have reiterated their buy rating and $4.80 price target on the miner's shares.
Based on the current South32 share price of $3.86, this implies potential upside of 24% for investors over the next 12 months.
Another positive is that Goldman is expecting some big and growing dividend yields in the coming years. It has pencilled in fully franked dividends per share of 11.6 US cents in FY 2023, 27.7 US cents in FY 2024, and then 28.1 US cents in FY 2025.
Based on where South32 shares currently trade and the latest exchange rates, this will mean yields of 4.6%, 10.9%, and 11.1%, respectively.
What did the broker say?
Today's note centres on the company's Hermosa underground Zn/Pb/Ag/Mn project in Arizona, United States. Goldman has just visited the site and appears to be pleased with what it heard. It commented:
We now value Hermosa at US$1.85bn (up from US$1.7bn; now 11% of our S32 NAV, after lifting head grades in Yrs 1-5). […] On the longer-term strategy of S32, discussions with senior management on site indicate a clear focus on growing base metals exposure in the Americas over the long run and likely exiting African exposure at some point when the time is right.
Outside this, the broker is bullish on South32 shares for four key reasons. This includes its attractive valuation and dividend yield. It said:
We rate S32.AX a Buy based on: (1) Attractive valuation, (2) Improving FCF outlook on higher production & commodity prices (base metals and met coal), (3) Supportive share buyback and dividend yield, (4) Upside potential from base metal growth projects.
