Should you Buy Miners?

By Richard Mason

Jul 04, 2023

Despite challenges, there are compelling reasons to consider investing in the undervalued mining sector.

Miners watching a Conveyer at a Mine

Miners, as in old-fashioned mining company stocks, rather than bitcoin miners, have seen considerable volatility in recent years, hence some of them are undervalued and unloved. This is because, during an economic recovery, investors traditionally find better stocks to invest in, such as the financial sector or growth/tech sector, whilst shunning away from the less attractive miners.

And the reverse is true during turbulent economic times. For instance, during the financial crisis of 2007/2008, investors flocked to safer assets such as gold, pushing the price higher or in turn providing positive sentiment towards commodity-based businesses as the value of their product increased.

Indeed, after 2008, the price of gold soared. It fell back between 2012 and 2018 but climbed again as economic uncertainty and geopolitical tensions rose.

gold-price-chart
Trading Economics

Historically, as the world’s economies recovered and investors worked up an appetite for risk, the price of gold would fall and miners consequently lose value based on the fact that the material they are producing is losing value. However, the US stock market saw an unprecedented rally in 2020, while the price of gold simultaneously soared.

The S&P TSX Global Mining Index gives us an idea of how miners have fared in recent years. As you can see, the general direction is up.

sp-tsx-global-mining-index

China’s recent economic slowdown has affected commodity prices negatively which has been one contributing driver in miners falling out of favor. China has a huge influence on commodity prices and this is why you see mining company stock prices rise when better-than-expected economic data from China is released.

Why Invest in Miners?

So why should you consider investing in the mining sector? Despite environmental, geopolitical, societal, and economic challenges, there are compelling reasons to consider investing in miners.

Sectors tend to move through cyclical phases, with company valuations becoming overvalued as they reach their peak. This overvaluation can make stocks less attractive to new investors, triggering sell-offs and prompting market participants to search for undervalued, fundamentally appealing stocks.

As the world's economies recover, so do manufacturing and production, which in turn should provide a lift to commodity prices. One issue to keep in mind here is supply and demand, although demand may increase for a particular commodity if there is a high supply, the price will only be affected marginally. So it is often a good idea to invest in a miner that has exposure to multiple products rather than one as this will reduce your commodity risk.

Decarbonization remains a strong focus of many governments and the road to a greener planet needs miners to ensure we get there.

Another hint you can get as to whether it's a good time to invest in Miners is to look for Moody's latest rating on the sector. For instance, in March 2023, Moody's upgraded its Global Metals and Mining Outlook to Stable from Negative.

You can also seek out bank ratings to gauge investor sentiment. In 2014, when this article was originally written, JP Morgan gave the Metals and Mining sector a double upgrade. After two to three years of pessimism for the sector, JPM moved from underweight to overweight, pointing to signs of a rebound in Chinese activity, lower costs, and recent lackluster performance from mining shares.

We believe the risk-reward for miners appears better due to a strong cost-cutting drive, a huge past re-pricing in earnings and in performance, especially if near-term data flow picks up,” the bank said. “While the remainder of the second quarter could lack momentum, we believe this is an opportune time to build exposure ahead of expected outperformance in the second half,” JP Morgan analyst Fraser Jamieson said.

At ValueTheMarkets, we believe that there is significant potential in the mining sector, making it an opportune time to consider exposure if you're contemplating investing in this space. 

Top Miners garnering investor interest include the following:

  • Anglo American plc (LSE: AAL) (OTC: NGLOY) is a global mining company. The Company's mining portfolio includes bulk commodities including iron ore, manganese, and metallurgical coal, base metals including copper and nickel and precious metals and minerals including platinum and diamonds. Anglo American has mining operations in Africa, Europe, North and South America, Asia, and Australia. 

  • Antofagasta PLC (LSE: ANTO) (OTC: ANFGF) owns and operates copper mines in Chile and conducts exploration activities in Chile and Peru. The Group also operates a rail network servicing the mining region of northern Chile, as well as operates a concession for the distribution of water in this region.

  • Atalaya Mining (OTC: ATLMF) (LSE: ATYM) is a leading copper producer in Europe. The company’s profitability, cash generation capabilities, and attractive dividend yield give it investor appeal.

  • BHP Group Ltd (NYSE: BHP) manufactures base metals. The Company offers copper, iron ore, metallurgical coal, nickel, and potash metals for global economic growth infrastructure to energy transition used in household, steel products, food supply chain, and lithium batteries that power the electric vehicle revolutions.

  • Centamin (OTC: CELTF) (TSX: CEE) (LSE: CEY), an Egyptian gold producer has robust production plans, exploration potential, and solid financials.

  • Glencore PLC (LSE: GLEN) (OTC: GLNCY) is a diversified natural resources company. The Company operates in three groups, metals and minerals, energy products, and agricultural products. Glencore offers its products and services around the world.

  • Rio Tinto (NYSE: RIO) operates as a mining company. The Company focuses on mining for aluminum, borates, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide feedstock, diamonds, salt, and zircon. Rio Tinto serves clients worldwide.

Important Notice And Disclaimer

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.