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Goldman raises European metals and mining sector

Goldman Sachs upgraded the European metals and mining sector to “attractive” from “neutral,” saying it expected increased cash flow forecasts in the sector due to production growth and rising commodity prices.

High base and platinum group metal prices together with higher-than-expected bulk metal contract settlements are expected to generate record cash flows in 2008, the brokerage said in a note to clients.

It expects platinum prices to pick up further as it sees the mining industry in general to experience further power supply problems through the coming South African winter.

“We believe this will cause further substantial spikes as the platinum price will have to ration demand in such circumstances. Such price spikes are likely to more than offset the impact of lower volumes and higher unit costs in our view,” Goldman said.

The brokerage also expects rising base metal and iron ore prices along with a tight metals market to spur economic activity in 2009.

Goldman, which removed Nyrstar from its conviction buy list, said it sees Vedanta Resources benefiting from strong growth in most businesses over the next 12 months.

Goldman Sachs believes Anglo American has been overlooked by investors and that it currently offers the most upside to fundamental fair value within the sector. It has a buy rating on the stock and added it to its conviction buy list. (Reuters)