Mining and Heavy Industries

Goldman Sachs downgrades BHP

Laing O'Rourke works across a number of Australian sectors including rail. It worked on BHP's RGP5 Railway in the Pilbara, pictured here. Photo: Laing O'Rourke

Investment bank Goldman Sachs has cut its rating on BHP shares, due to the global downturn in commodity prices.

Goldman Sachs recently downgraded BHP shares on the London stock exchange to a “sell” rating.

Previous guidance from the bank was that BHP shares would reach £14 on the London exchange in the next 12 months, but Goldman Sachs has now lowered that forecast to just £11.

“After a strong 12 months, and despite continued strong Chinese economic data for the March quarter, mining equities have started to underperform,” the investment bank said in its note.

“A key underlying assumption [previously] was that commodity prices would taper slowly, supporting cash flows, resulting in lower net debt.

“However, the recent significant leg down in most commodity prices suggests that a large part of this anticipated cash flow is unlikely to materialise.”

Goldman Sachs pointed out the strong performance of the Chinese economy has led to tighter fiscal policy, another piece of bad news for the commodity sector.

“With the bias towards tightening no longer in doubt, we believe that policymakers could look to rein in credit growth further, especially to the old economy, which is more commodity-intensive,” it said.

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