Insights

Goldman rates the BHP (ASX:BHP) share price as the best ASX iron ore producer

Goldman Sachs believes the BHP Group Ltd (ASX: BHP) share price is the best iron ore major to buy, driven by its strong margins.
The post Goldman rates the BHP (ASX:BHP) share price as the best ASX iron ore producer appeared first on The Motley Fool Australia. –

hand selecting happy face from choice of happy, sad and neutral signifying best ASX shares

Goldman Sachs has taken a deep dive on the Pilbara iron ore majors, BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG).

After running the ruler on operational and production metrics, the broker is buy rated on the BHP share price while neutral rated on Rio Tinto and Fortescue. 

Lower capital intensity 

Goldman Sachs brings to our attention the significant capex expenditure required for Rio Tinto. Rio’s 2020 results confirmed that its Pilbara capex will remain above US$3 billion per annum, almost double its peers, until at least 2024. The broker believes Rio Tinto runs the risk of having the highest number of mines to replace, as well as the greatest production and capex risk from the Juukan Gorge incident

This incident involved the company destroying a historically and culturally significant site in Western Australia, that resulted in the departure of its chief executive and two senior executives. Goldman believes current and future heritage approvals could poise a risk to its Pilbara operations.

As a result of mine depletion issues and heritage challenges, Goldman cites that Rio Tinto may have 12 replacement mines to build by 2027, which equates to almost current annual production. 

As key advantage for BHP is its larger mine sites and mining hubs which lowers the requirement for replacement sites. The broker notes that this brings BHP’s capital intensity in Pilbara to average c. US$7/tonne over the next five years, compared to Rio Tinto and Fortescue at c. US$11/tonne. 

Strong margins to drive the BHP share price 

The report positions BHP as the iron ore major with the highest earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins. In the long run, Goldman forecasts that BHP will generate an EBITDA margin of 60% compared to Rio at 56% and Fortescue at 47%. 

From an iron ore grade perspective, BHP is also positioned to surpass Rio Tino when its South Flank mine ramps up and replaces the lower grade Yandi mine. Rio Tinto currently has the highest average product grade at 61% compared to BHP at 60% and Fortescue at 57–58%.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of February 15th 2021

More reading

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Goldman rates the BHP (ASX:BHP) share price as the best ASX iron ore producer appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!