Goldman Sachs said it was focusing on single-stock buying opportunities in the mining sector as it does not see any strong catalyst for a sector-wide turnaround at a time when commodity prices are languishing.
Goldman Sachs said its negative outlook on the mining sector was reinforced by expectations of a weaker Chinese economy and lower iron ore and copper prices.
According to a Reuters poll, China's economy likely grew 7.5 percent between April and June from a year ago, slowing from the previous three months as weak demand dented factory output and investment growth.
Iron ore <.IO62-CNI=SI> prices are down nearly 16 percent this year as sluggish economic activity curbs Chinese demand.
Goldman counted global mining majors such as Rio Tinto Plc and Anglo American Plc among its top "sell"-rated stocks, citing negative earnings momentum and the dependency of their free cash flow on iron ore.
"We see upside potential to nickel, aluminium and zinc prices but these do not impact our large-cap coverage sufficiently to get overly positive," Goldman said.
Asset sales and cost cuts would not be enough to compensate for the weak underlying performance of large-cap mining stocks, the brokerage said.
"While the sector has underperformed it is not particularly cheap...and those that look cheap on near-term earnings estimates are facing big declines in 2015," the brokerage said in a note dated July 9.
Instead Goldman said it favoured mining companies that focused on funded growth and strong free cash flows.
Goldman Sachs upgraded Canada's First Quantum Minerals Ltd to "buy" from "neutral", attributing the upgrade to its industry-leading growth, an attractive project portfolio and an improving cost position.
The brokerage also upgraded London-listed Vedanta Resources Plc to "buy" from "neutral", saying the company offered near-term earnings growth helped by its aluminium, copper, zinc, and energy businesses.
Rio Tinto's London listed shares were down 1.22 percent at 2703 pence at 0906 GMT on Wednesday, while Anglo American shares were down 1.5 percent at 1262 pence.