Goldman Sachs take on 16 ASX miners: Earnings to slide, dividend cuts and capex risks

Goldman Sachs predicts a sharp 25% earnings drop for the Materials sector, weighed by market cap, during February reporting season due to record commodity prices in 2021-22.

In this article, I'll review some of Goldman Sachs' key miner reporting season themes, what to look out for and an update for ratings/target prices.

Key themes for February reporting season

Lower dividends: "We think these results will be the start of reduced dividend payouts for the major diversified miners due to increase growth and decarbonisation capex and also increased M&A activity."

Capex on the rise: "We also expect updated or newly reported FY23 opex and capex guidance ... we expect modest opex increases considering the December quarter results saw ongoing operating cost inflation ... some working capital increase from mostly inventory build."

Capex risks: Capex inflation "could surprise to the upside" with recent updates from Lynas (ASX: LYC) and Oz Minerals (ASX: OZL) upgrading cost estimates.

Results preview and what to look for

Steel

Sims (ASX: SGM): $16.50 target price; Retains Neutral

• Outlook for third quarter volumes and margins as well as 2H23 earnings guidance (Goldman forecasts $158 million)

BlueScope Steel (ASX: BSL): $21.40 target price; Retains Buy

• BlueScope guided to $800-900m for first-half earnings, Goldman expects $869m

• Look out for updates on blast furnace reline capex of $1bn and the 2.9m tonnes per annum North Star ramp up

BlueScope 1-year chart (Source: Market Index)

Iron ore

BHP (ASX: BHP): $49.00 target price; Retains Neutral

• Goldman expects lower metallurgical and thermal coal prices to weigh on earnings, forecasting earnings of US$13.7bn versus US$18.5bn a year ago

• Net debt forecast to jump to US$7.3bn to reflect the Oz Minerals takeover

• "We expect focus will be on growth including any update on the copper and nickel growth strategy, portfolio (possible further met coal divestment, further M&A), capex guidance and decarbonisation spend."

Rio Tinto (ASX: RIO): $132.00 target price; Retains Buy

• Goldman estimates are below consensus expectations due to depreciation, rehabilitation costs and tax

• Rio Tinto reports its full-year results, estimates include: net profit of US$12,9bn, full-year dividend of US$4.64 per share and net debt of US$4.0bn

Champion Iron (ASX: CIA): $8.20 target price; Retains Buy

• Champion Iron reported its December quarter results in late January, where earnings of C$118m was approximately 20% above Goldman's expectations

• Forward iron ore prices offset the weak production result

Fortescue (ASX: FMG): $13.60 target price; Retains Sell

• Goldman estimates half-year FY23 net profit of US$2.5bn and an interim dividend of US$0.56 per share (70% payout)

• Looking for updates about Pilbara decarbonisation capex, Iron Bridge commissioning and Fortescue Future Industries projects

Fortescue 1-year chart (Source: Market Index)

Copper

Oz Minerals (ASX: OZL): Not rated

• Net profit forecast to be $176m with a 5 cents per share final dividend

• "Focus will be on growth projects (timing, capex) and the offer from BHP"

Sandfire Resources (ASX: SFR): $4.30 target price; Retains Sell

• Goldman is more bearish on half-year results, forecasting a -US$19m loss compared to consensus estimates of -US$2m

• Sandfire recently updated its FY23 guidance which expects copper production to be at the bottom-end of guidance and higher costs

• Focus areas will be on "Matsa mine development and construction of Motheo with first production on track for June Q 2023."

Sandfire 1-year chart (Source: Market Index)

Coal

Whitehaven Coal (ASX: WHC): $9.90 target price; Retains Neutral

• Half-year FY23 net profits has already been pre-reported by the company ($2.5bn)

• "We think focus will be on the outlook for capital returns, bolt-on M&A vs. organic growth ... Whitehaven could increase their minimum capital returns to 50% (from 20%-50%)"

New Hope (ASX: NHC): $4.90 target price; Retains Sell

• Goldman expects below consensus saleable coal production of 1.82m tonnes (cons at 1.92m tonnes) and net profits of $890m

• "Update on New Acland Stage 3 (NAC3) and Bengalla exp capex and timing. Potential for increase stake in Malabar resources."

Coronado (ASX: CRN): $2.45 target price; Retains Buy

• Goldman forecasts net profits of US$780m and a US$0.125 per share final dividend

• Coronado pre-reported its net cash position, which was US$92m

• Areas of focus include 2023 guidance to show improvement on 2022, update on Curragh expansion to 13.5m tonnes per annum and costs/capex

Coronado 1-year chart (Source: Market Index)

Aluminium

South 32 (ASX: S32): $4.80 target price; Retains Neutral

• Goldman estimates half-year FY23 net profits of US$500m, which is below consensus expectations of US$550m

• Expects a share buyback program of approximately US$250m

• Flags possible FY23 opex and capex guidance update that includes "increases at certain assets due to cost inflation and strong FX"

Alumina (ASX: AWC): $1.35 target price; Retains Sell

• A bold prediction that Alumina will not start paying dividends again until February 2024 versus consensus expectations of a US$0.40 cents per share payout

Alumina 1-year chart (Source: Market Index)

Other

Mineral Resources (ASX: MIN): $88.00 target price; Retains Neutral

• EBITDA forecast to rise to $1,033m from $156m in 1H22 (the fall was due to a significant reduction in iron ore revenue and adjustment impacts)

• Looking for key updates for Ashburton iron ore capex and Albemarle lithium joint venture

Deterra Royalties (ASX: DRR): $4.50 target price; Retains Neutral

• Goldman and consensus expects half-year FY23 net profit of $65-69m and an interim dividend of 12.2 cents per share

• Notes $96.8m in royalty receipts from BHP in the December half

Iluka Resources (ASX: ILU): $12.60 target price; Retains Buy

• Goldman forecasts full-year 2022 earnings of $933m and 2023 guidance of 660,000 tonnes for zircon, rutile and synthetic rutile

• Also eyes on study results for the Balranald (FID) and Wimmera (PFS) growth projects