Top 5 mining stocks: Commodity boom boosts market outlook
With several metal prices hitting record-highs this year, the commodity super-cycle is boosting mining companies’ profit margins and stock value. As a result, many may be looking to learn more to determine whether or not to invest in mining stocks in 2022. Read on to learn more about the top performing mining companies this year and the mining stocks to watch.
Mining industry market overview
Mining companies explore and extract metal and mineral deposits. The recovered ores are processed and refined into high-purity metals, which are traded and used across sectors from energy, infrastructure and agriculture to consumer goods.
Mined commodities include coal, metals, potash, phosphate and construction materials such as sand, crushed stone and limestone.
Metals are divided in the categories of precious (gold, silver, platinum, palladium), non-ferrous (copper, aluminium, zinc, nickel, cobalt, lithium) and ferrous (iron).
“Many of these metals and materials are crucial to the functioning of the global economy. They're in high demand, which boosts prices during periods of expansion. But the mining industry is cyclical, as the Covid-19 outbreak has demonstrated,” wrote investment guide The Motley Fool.
It’s crucial to keep a close watch on the macroeconomic picture and global economic growth when investing in mining stocks, as the sector is cyclical and driven by supply and demand.
Precious metals such as gold and silver are safe-haven assets, which tend to rise in value during times of uncertainty and low interest rates. The increased investment in precious metals at the beginning of Covid-19 outbreaks boosted the gold and silver market, and the mining companies’ stock prices.
In contrast, prices for metals with industrial applications such as steel, copper, aluminium, zinc, nickel, cobalt and lithium are primarily driven by supply and demand. As China is the biggest consumer of metals, mining companies are also highly exposed to the economic risks of the country.
With much of the global limelight focused on the energy transition to cut down greenhouse gas emissions, the global electrification program has intensified and more countries are implementing stricter emission rules to meet net-zero targets.
The demand and price rally across non-ferrous metals this year was driven by rising electric vehicle (EV) sales. Analysts expect the trend of increasing EV market share to continue over the next decade.
Rising EV sales have boosted the demand for key battery minerals and metals such as lithium, cobalt and nickel. The electrification of transportation also brought about an increase in copper demand, as the metal is used in wiring.
Top five mining stocks list by market cap
The top three groups are also the biggest iron ore producers in the world. See below for more details on the companies.
Australia-headquartered BHP Group (BHP) is an Anglo-Australian multinational mining, metals and petroleum company. The group is one of the world’s top three largest iron ore miners. It also produces copper, nickel, coal, petroleum and potash.
The group is listed on the New York Stock Exchange (NYSE). At the time of writing (9 December) its share price was $57.56. BHP’s share prices started the year at $68 and reached a year-high of $82.07 on 10 May, before falling back in the $60 range in August.
Slower Chinese economic growth has an impact on the commodity market and BHP’s share price. In September, Chinese property developer Evergrande’s debt crisis emerged after the group missed repayment deadlines on borrowing. Evergrande has borrowed billions to fund its growth over the years. It was struggling to keep up with interest repayments, and falling property sales in China has worsened the group’s cash-flow. The group’s shares and bonds are included in funds across Asia. Any default could affect banks, suppliers, home-buyers and investors.
The fallout from Evergrande’s debt crisis could have a major impact on the Chinese economy and potentially lead to the collapse of the domestic property market. This would also cut demand for metals used in construction. This led to a temporary dip across most commodity and miners’ share prices. BHP’s share prices fell to a year low of $51.88 on 18 November.
Rating agency Fitch Ratings forecast BHP group’s earnings to peak in 2021, with earnings before interest, taxes, depreciation and amortisation (EBITDA) of $32bn. This is driven by the global economic recovery post-Covid through infrastructure-centric stimulus.
In May, Fitch Ratings affirmed BHP’s long-term issuer default rating and senior unsecured rating at ‘A’ with stable outlook.
London-headquartered Rio Tinto (RIO) is an Anglo-Australian multinational metal and mining group. Rio Tinto is one of the world’s top three largest iron ore miners. It also produces aluminium, copper, borates, lithium, diamonds, salt and titanium dioxide.
Rio Tinto’s share price on NYSE was $63.88 on 9 December. Rio started the year at $78.89 and climbed briefly above $90 in February before gradually falling over the next few months. Although Rio’s stock value has fallen over the months, the group’s average share price in 2021 is above the previous two years, when the stock was largely trading below $60.
Rating agency Fitch Ratings has affirmed Rio Tinto’s long-term issuer default rating at ‘A’ with stable outlook in April.
Vale (VALE) is a Brazilian multinational corporation engaged in metal mining and processing. The group also operates a logistic network in Brazil, Indonesia, Mozambique, Oman, Malaysia and China that integrates mines, railroads, ships and ports for the transportation of its mined ore and carries third-party cargo.
Vale is one of the world’s top three iron ore miners. It also produces nickel, manganese, ferroalloy, coal and copper.
The group is listed in the US and Brazil. Vale’s share price on the NYSE has been rising over the past month after falling since the end of August. At the time of writing (9 December) its stock price was $13.66, up 6% from $12.88 on 1 November.
Vale started the year at $17.50 and climbed briefly above $22 in May, maintaining a general high until August, when it fell below $20. The price reached a low of $11.16 on 18 November. Although Vale’s stock value has fallen over the months, the group’s average share price in 2021 is above the previous two years, when the stock was largely trading below $13.
The group suffered heavy losses when its Brumadinho tailings dam in Brazil collapsed in January 2019, killing 270 people. The group has agreed to pay $7bn in compensation to the victims of the mining disaster.
Fitch Ratings affirmed Vale’s long-term issuer default rating at “BBB”, with a stable outlook in November.
None of the information in this article constitutes investing advice. When considering whether to invest in any company’s stock, you should always do your own research, considering the outlook and relevant market conditions.
A number of factors dictate whether stock prices rise or fall, including the company’s fundamentals and broader macro-economic factors. There are no guarantees. Markets are volatile. You should conduct your own analysis, taking in such things as the environment in which it trades and your risk tolerance. And never invest money that you cannot afford to lose.
Are mining stocks a good investment?
Mining stocks are cyclical, driven by supply and demand. They are affected by macroeconomic conditions and global economic growth, particularly in China. As China is the largest consumer of energy and metal commodities, a slowdown in the country’s economic growth will affect overall demand and prices.
Whether mining stocks are a good investment for you or not depends on your investing goals and portfolio composition. You should do your own research and never invest what you cannot afford to lose.
What are the biggest mining companies?
Some of the biggest mining companies by market capitalisation are BHP, Rio Tinto, Vale and Glencore.