Copper tailwinds remain strong, but Australian miners face cost inflation and near-term pressure from iron ore and aluminium

Overview

This report is Goldman Sachs' commodity price update and June-Q/FY27 earnings preview for the Australian metals and mining sector. The central message is that copper and selected base metals continue to benefit from strong price tailwinds, while rare earths and US steel also have structural support; however, iron ore, aluminium, lithium and industry costs face near-term pressure. Goldman Sachs also updated its valuation, earnings, NAV and target-price estimates for covered companies and provided key stock recommendations.

Core views

Goldman Sachs' view of the sector is one of divergence rather than an outright bullish stance. Copper is supported by tight refined-metal markets, mine supply issues, expectations of US imports and low smelting and treatment charges, and base-metal producers are likely to benefit from higher realised prices in June-Q. Conversely, iron ore may be weighed down by slowing Chinese steel demand, seasonally higher shipments and coking-coal shortages; aluminium price forecasts were lowered because of record Chinese production, the resumption of shipments from Middle Eastern inventories and expected new supply. On costs, higher diesel, FX, labour, steel, cement and equipment prices have led Goldman Sachs to forecast opex and capex for several companies above Visible Alpha Consensus Data.

Analysis framework

The report combines the commodity team's price forecasts, spot and forward curves, Visible Alpha Consensus Data, company operating and capital-expenditure assumptions, NAV and EV/EBITDA valuation frameworks, and first-hand feedback from Singapore conferences on iron ore and coking coal to assess the impact of commodity prices, cost curves and earnings revisions on Australian mining equities.

Methodology notes

• Valuation methodsNAV and EV/EBITDA

  Measure the valuation position of mining equities using NAV discounts/premiums and NTM EV/EBITDA multiples.

  The report indicates that the Australian mining sector averages approximately 0.95x NAV, diversified miners approximately 6.5x NTM EBITDA, pure-play base-metal companies approximately 7x EV/EBITDA, and coal equities approximately 4.5x, which are used to assess relative attractiveness after the pullback.

• Earnings forecastsGSe vs. Visible Alpha Consensus Data

  Compare the differences between Goldman Sachs' forecasts and market consensus expectations.

  Goldman Sachs' absolute cost forecasts for the next 12 months are generally above consensus, particularly due to diesel, FX, labour and project costs; it also compares potential upside and downside risks for June-Q results and FY27 guidance.

• Commodity supply and demandCost curves and inventory/supply balances

  Assess price direction through changes in supply disruptions, capacity recovery, inventory flows and cost curves.

  Tight non-US copper markets and mine supply issues support higher forecasts; aluminium forecasts were lowered due to supply recovery and higher regional production; coking coal is expected to remain strong in the near term because of the Shanxi accidents and the limited substitutability of high-quality Australian coal.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Copper

  Core positive commodity driver

  Strengths

  Tight refined-copper markets, US import expectations driving inventory flows to the US, and ongoing mine supply issues; Goldman Sachs raised its end-2026 and 2027 copper price forecasts.

  Weaknesses

  Metal prices could come under pressure in 2H if the US dollar strengthens or US rate hikes increase financial stress.

  Comparison

  Compared with iron ore and aluminium, copper faces stronger supply-and-demand constraints, and the report has greater confidence in its long-term price.

  Risks

  Disappointing tariff expectations, weaker demand, a stronger US dollar or new supply releases could weaken the price upside.

• BHP

  Buy recommendation, benefiting from copper exposure and its balance sheet

  Strengths

  Higher copper EBITDA exposure than RIO, a stronger balance sheet and relatively positive near-term capital-return expectations.

  Weaknesses

  Jansen Stage 2 capex has increased from US$4.9bn to US$6.9bn, while project returns and potash-market uncertainty are negative factors.

  Comparison

  Valuation is close to RIO's, but Goldman Sachs believes BHP has stronger near-term momentum.

  Risks

  Project delays, continued cost increases, uncertainty around potash-market supply and demand, and copper-price volatility.

• RIO

  Neutral, with good growth quality but greater near-term commodity pressure

  Strengths

  Medium-term production and EBITDA growth remain industry-leading, with planned asset sales and cost reductions.

  Weaknesses

  Iron ore, lithium and aluminium prices could weaken in the near term, and 1H typically involves working-capital consumption.

  Comparison

  Valuation is similar to BHP's, but lower copper exposure means its near-term commodity mix is less favourable than BHP's.

  Risks

  Lower iron ore prices, one-off costs related to cost reductions, execution of asset sales and uncertainty around potential M&A.

• WHC

  Upgraded from Sell to Neutral

  Strengths

  Near-term coking-coal price upside, valuation below NAV, approximately +10% NTM FCF yield and a target price raised to A$8.1/sh.

  Weaknesses

  Unit costs remain exposed to diesel and labour inflation, while the long-term outlook for Australian metallurgical coal prices remains cautious.

  Comparison

  Trading at approximately 4.5x NTM EBITDA, above global coal peers at approximately 4x, but at approximately 0.9x NAV on a DCF basis.

  Risks

  Underground equipment reliability, geological issues, logistics or project-execution risks, falling coal prices, cost inflation and a stronger AUD.

• FMG

  Downgraded from Neutral to Sell

  Strengths

  The balance sheet remains strong, dividends are stable and there is potential to monetise renewable power.

  Weaknesses

  Iron ore shipments are constrained by ports, mine replacement faces land and Indigenous issues, Iron Bridge remains FCF-negative, and decarbonisation investment has yet to generate returns.

  Comparison

  Valuation is approximately 1.1x NAV, above BHP and RIO at approximately 0.9x NAV; FCF yield is approximately 2%, below peers at approximately 5%.

  Risks

  The 61% iron ore index falling below US$95/dmt, lower-grade ore prices being weighed down by high coking-coal prices, CMRG negotiations and rising capex.

• BSL

  Buy reinstated

  Strengths

  Supported by US steel prices, spreads and earnings momentum, with a strong balance sheet, improving FCF and upgraded FY27/28 EBITDA forecasts.

  Weaknesses

  Still constrained by the global steel cycle and peer valuations.

  Comparison

  Trading at approximately 6x EBITDA, below global peers at approximately 7x.

  Risks

  Falling steel prices, narrowing spreads, weaker demand and cost pressures.

Key data

• Diversified miners valuationApproximately 6.5x NTM EBITDABack near the historical average of 6.5-7x in 2025.
• Australian mining sector NAVApproximately 0.95x NAVBelow the approximately 1.15x NAV average level in May.
• LME copper forecastUS$13,735/t at end-2026; US$13,800/t average in 2027Raised by Goldman Sachs' commodity team to reflect tightening copper balances.
• Long-term copper price balancing levelApproximately US$15,000/t in 2035Goldman Sachs believes this price is required to sustain mature mines, increase copper scrap recovery, encourage substitution and support new mine development.
• Aluminium price forecast reductionUS$2,950/t in 4Q26; US$2,700/t average in 2027Previously US$3,200/t and US$2,950/t, respectively, due to faster-than-expected supply recovery.
• Coking-coal losses from Shanxi accidentsEstimated at 15-20Mt through the end of August 2026Feedback indicates that 50-55Mt of capacity remains offline, with uncertainty over whether all of it can be restored.
• Potential Australian coking-coal price in 2H26US$260-280/tSpot prices are approximately US$240/t, supported by China's supply gap and the diversion of Australian coal to China.
• WHC target priceA$8.1/shRaised from A$6.0/sh, with the rating upgraded from Sell to Neutral.
• BSL target priceA$37.7/shBuy rating reinstated, supported by steel prices, spreads, earnings momentum and improving FCF.

Impact & implications

For portfolios, the report suggests distinguishing between commodity and company exposures: copper, rare earths, premium steel and selected coking-coal exposures have stronger support; iron ore, aluminium, lithium and high-capex projects face greater uncertainty. Cost inflation is not only a near-term profit pressure but may also provide long-term support for commodity prices by lifting the cost curve, although it will intensify divergence in individual-company earnings ahead of FY27 guidance.

Risks

• A stronger US dollar and US rate hikes could weigh on metal prices in 2H.
• Seasonal weakness in Chinese steel demand, increased iron ore shipments and CMRG negotiations could cause near-term downside in iron ore prices.
• Higher diesel, labour, steel, cement, equipment and FX costs could continue to push up opex and capex.
• The aluminium market could rebalance due to the recovery of Middle Eastern smelting capacity, higher Indonesian production and increased Chinese exports, prompting lower price forecasts.
• Although near-term coking-coal supply disruptions are positive for prices, increased Mongolian and Russian supply over the long term could pressure Australian metallurgical coal prices.
• At the company level, risks include project execution, mine replacement, geology, equipment reliability, logistics, capital allocation and asset-sale execution.

What to watch

• Whether June-Q actual production, realised prices, unit costs and capex validate Goldman Sachs' differences versus consensus.
• The extent of opex and capex increases in FY27 guidance, particularly for cost-sensitive companies such as MIN and SFR.
• Chinese steel demand, the 61% iron ore index, lower-grade ore discounts, and progress in CMRG negotiations with FMG/RIO.
• The pace of Shanxi coking-coal capacity restarts, whether all 50-55Mt of offline capacity returns, and the extent to which high-quality Australian coal is diverted to China.
• LME copper inventory flows, US copper import tariff policy and changes in non-US copper-market balances.
• The pace of aluminium supply recovery, including Al Taweelah, Middle Eastern inventories, new Indonesian capacity and Chinese exports.
• BHP's capital returns and next steps for Jansen Stage 2; RIO's asset sales and cost reductions; FMG's mine replacement and returns on decarbonisation investment; and WHC's coal-price realisation and cost control.