Goldman Sachs' Top Mining Play For 2018
(Kitco News)- Although Goldman Sachs isoptimistic on gold prices this year, the investment firm sees the mostpotential in copper.
In its latest research, led bycommodity analyst Matthew Korn, Goldman said that it is bullish on copper asthe market faces impending supply issues. For this reason, analysts see mininggiant Freeport-McMoRan (NYSE: FCX) as a good investment. The bank has a pricetarget of $23 within the next year, a nearly 23% increase from current shareprice at $18.75 per share.
“Copper miners continue to warnof impending deficits, but now the reckoning is 1-2 years away, not 7-8, andthe ‘wall of supply’ has largely come and gone,” the analysts said in a report.“Mining giant FCX offers the highest exposure to copper, the metal for which wesee the most upside pricing risk.”
Korn's team also liked Teck Resources(NYSE: TECK) because of the bullish copper outlook but didn’t provide a ratingfor the company in its report. The analysts noted that among individual miners,TECK is currently trading the most below its historical range.
Not only does Goldman likecopper, but the firm also expects that North American companies offer investorsthe best value.
“Looking at the set of globalcomparables and consensus estimates, the U.S. stocks trade slightly cheaperthan their [rest of world] peers,” the analysts said.
However, despite its optimisticoutlook, the investment bank said that the sector is not without risk. Theglobal economy is expected to continue to grow, with Goldman calling for globalGDP to expand 4.1% this year. But, the bank’s economists have warned that thiscould be as good as it gets.
The bank also sees growing geopoliticalrisks as a potential drag on the commodity sector and in turn on miners.
Goldman also reiterated itsbullish outlook on the broad commodity sector as analysts expect prices to riseas interest rates increase as a result of growing optimism regardingcoordinated global economic growth.
“A rising rate cycle driven bymature growth has historically been positive for commodity prices - we havefound that it has also been good for the M&M stocks,” the analysts said.
Although Goldman sees copper withthe best potential within the next year, the firm is also bullish on gold. Lastmonth the firm increased its 12-month forecast for gold, expecting the metal torise to $1,450 an ounce.
Analysts said that they areoptimistic about gold as emerging-market growth picks up, leading to higherconsumer demand for the yellow metal.
“The ‘normal’ relationship wouldsay that gold has to go lower as real rates rise, since as a non-yielding assetthere is less reason to hold gold in a higher rate environment. However, as EMgrowth has recovered, so has their gold demand, leading to an upward level shiftin the equilibrium gold price,” the analysts said in a February report.
While Freeport is known as theworld’s largest publicly traded copper producer, it also has a significant goldportfolio. Last year the company produced 1.577 million ounces of gold. Thecompany expects to sell 2.4 million ounces of gold this year.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.