Image source: Getty Images
One popular ASX 200 mining stock could be in danger of crashing deep into the red.
That’s the view of analysts at Goldman Sachs, which are urging investors to sell this miner before it’s too late.
But which mining giant is it? Is it BHP Group Ltd (ASX: BHP)? Thankfully for its shareholders, it isn’t the Big Australian.
Goldman is actually tipping its shares as a buy with a $49.00 price target.
Nor is it Rio Tinto Group Ltd (ASX: RIO), which the broker has a buy rating and $138.90 price target on.
The ASX 200 mining stock that could crash over 30% according to Goldman Sachs is Mineral Resources Ltd (ASX: MIN).
Why could the ASX 200 mining stock crash?
While Goldman acknowledges that Mineral Resources has an enviable track record. It isn’t enough for the broker to be positive on the investment opportunity here. It said:
We continue to highlight that MIN has an impressive 20-yr track record of generating high returns on capital with an average ROIC of >20% since listing. This has been achieved through MIN’s ability to build and operate crushing plants and mining projects faster and at lower capital intensity than most other companies. Despite this impressive track record, we continue to rate MIN a Sell.
One of the key reasons that its analysts think its shares are a sell is its valuation. They highlight the premium its shares trade at compared to peers. Goldman explains:
Fully valued vs. peers and downside to PT: trading at ~1.35xNAV (A$54.6/sh) based on our volume and operating assumptions and long-run price assumptions. MIN is pricing in long-run commodity prices ~20% higher than our estimates. MIN is also trading at ~17x NTM EBITDA (vs. Aus lithium peers on ~8.0x and large cap iron ore peers on ~5x) and ~7x FY26E.
In addition, Goldman notes that the ASX 200 mining stock is exposed to weak lithium prices, which it believes are heading even lower. It adds:
Lithium price expected to decline further from over 2024: our commodity team expect spodumene prices to average US$800/t and hydroxide at US$10,000/t (vs. spot c. US$1200/t and US$10,000/t) in 2H CY24 driven by our view of a market surplus over 2024-2025, and for the price to trade at or below marginal cost which we think will be set by Chinese integrated lepidolite producers.
Major downside predicted
Goldman has put a sell rating and $47.00 price target on its shares.
Based on the current Mineral Resources share price of $68.63, this implies potential downside of approximately 32% for investors over the next 12 months.
In addition, the broker expects disappointing dividends yields of just 0.3% in FY 2024 and FY 2025. This is a far cry from the juicy yields shareholders have received in recent times.