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Metal prices have jumped as demand recovers and Russia's war in Ukraine sparks shortage fears, which means upside ahead for mining companies, according to Goldman Sachs. In a note to
clients Monday, the firm said it expects the European mining sector to generate record cash flows during the first half of this year. The firm noted that its commodity coverage as a whole
has gained roughly 20% this year, adding that it anticipates more upside ahead due to a strong price environment. "A multi-year unprecedented bull cycle in metals is under way, with
most metals in short supply," the firm's analysts, led by Geydar Mamedov, wrote. "Metals prices across the space have set new highs, and we see room for even higher prices
near term as we believe the commodity bull cycle is here to stay." Goldman also pointed to the energy transition and green economy fueling demand for metals. Amid this attractive
backdrop, the firm put together a basket of stocks that should be on investors' radar. Rio Tinto is one name the firm likes, and Goldman upgraded the stock to a buy rating on Monday.
Mamedov pointed to the company's favorable commodities mix between iron ore and base metals, and said he expects the company's output to return to growth this year and next.
Goldman also highlighted Rio's "potential upside from growth projects in attractive future-facing commodities such as lithium and copper." Lithium is key for electric vehicle
batteries as well as grid-scale energy storage, while copper is vital for power transmission. The firm also has a buy rating on shares of Glencore and Anglo American . When it comes to
Glencore, Goldman said, the company has the strongest EBITDA momentum within the firm's E.U. mining coverage. Part of that is thanks to Glencore's exposure to thermal coal, which
is used for power generation. Coal prices have been on a tear recently amid the global energy crunch. Overall, Goldman believes the company will generate a record $34 billion of EBITDA this
year, which is more than 50% above 2021's levels. "We believe the result will be substantial excess shareholder returns against a well-defined capital structure," the firm
said. Longer-term, Goldman forecasts the company returning around 80% of its market cap to shareholders by 2025. Anglo American, meantime, stands out as a well-run business with a strong
balance sheet. Goldman said there are several catalysts for the company this year, including the new CEO taking the reins during the second quarter. Elevated spot prices in the commodities
market also means the company could announce additional investor payouts. Additionally, the firm noted that Anglo American has a differentiated product portfolio relative to peers and said
the stock is currently trading at a discount relative to its historical valuation. — CNBC's Michael Bloom contributed reporting.