When it comes to investing in the mining sector, there are two obvious picks – BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) shares.
These are two of the largest miners around with some of the best assets you will find from across the globe.
But which of the two would be the better option right now? Let's dig deeper into things.
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Should I buy BHP or Rio Tinto?
Firstly, it is worth noting that analysts at Goldman Sachs are bullish on both miners at this point.
The broker likes BHP due largely to its exposure to copper, highlighting that its analysts "remain bullish on copper due to ongoing supply side challenges and increasing demand."
Goldman believes that this will mean "BHP's copper EBITDA to increase by ~US$3bn to ~US$10bn by FY26E (~45% of group EBITDA)."
The broker likes Rio Tinto due to its aluminium and copper exposure, which it expects to underpin strong free cash flow (FCF) generation. Its analysts highlight that Rio Tinto "has a "FCF/dividend yield in 2025E (c. 5%/5% yield) & 2026E (c. 7%/6% yield) driven by our bullish view on aluminium and copper (~45-50% of group EBITDA by 2026E)."
However, Goldman does have a preference for one of these miners. But which one?
The miner to buy above others
According to a recent note, the broker prefers Rio Tinto shares above BHP shares.
This is due to that aforementioned FCF generation, as well as its positive production growth outlook. It explains:
The major diversified miners are back in investment mode, with capex set to reach 10-year highs over the medium term, though still well below the capex peaks of 2012. As a result, FCF is being impacted as the miners reinvest. We have completed a deep dive into RIO & BHP's project pipelines, which we estimate at around US$50-60bn each (excluding maintenance capex), including an upside 'all growth' case scenario that incorporates future growth options not in our base case.
Despite both mining companies spending around ~US$10-11bn p.a., we expect RIO to widen the production (Cu Eq) and FCF gap over BHP over the next 5yrs; alongside valuation, this is a key reason we prefer RIO.AX over BHP.AX (both Buy-rated).
At present, Goldman has a buy rating and $143.50 price target on Rio Tinto's shares. This implies potential upside of 21% for investors over the next 12 months.
Whereas for BHP shares, the broker has a buy rating and $47.30 price target on them. This suggests that upside of just under 20% is possible between now and this time next year.
Overall, both miners look like attractive options based on Goldman's recommendations, but Rio Tinto arguably just edges out its big rival.
