Investing in Mining Stocks

Mining stocks businesses locate, extract, and process lucrative mineral and material reserves. These are some of the substances:

  • Gold, silver, platinum, and palladium are examples of precious metals.
  • Iron ore, copper, aluminium, nickel, lithium, cobalt, and zinc are examples of industrial metals.
  • Sand, crushed stone, and limestone are examples of construction materials.
  • Coal, oil sands (bitumen), and uranium are examples of energy materials.
  • Boron, potash, and phosphate are examples of fertilisers.

The world economy depends on several of these metals and commodities. Raw materials are required by industries in order to construct and manufacture items, products, and infrastructure. Mined minerals are in great demand while the economy is growing, which drives up prices.

mining stocks

The mining business, on the other hand, is cyclical. When the economy slows, demand for mined resources tends to fall. Similarly, mining stock values tend to fall during a downturn. Investors should concentrate their efforts on mining stocks that can withstand future economic downturns.

Let’s take a closer look at some of the best mining stocks for 2022 and the mining industry as a whole.

What are the best mining stocks to purchase in 2022?

Here are a few of the most well-known mining companies:

1. Barrick Gold Corporation

With operations in more than a dozen countries, Barrick Gold is one of the world’s top gold miners. It’s a major copper producer as well. The concentration on Tier One mining assets distinguishes Barrick Gold from other precious metals firms. A Tier One mine is defined as one that:

mining stocks

  • Produces over 500,000 ounces of gold every year.
  • Has at least 10 years of useful life left in it.
  • Delivers total cash expenses per ounce that are lower than the industry average.

Tier One mines deliver a consistent supply of low-cost gold and copper. When prices are low, this allows Barrick to continue to profit.

In recent years, Barrick Gold has prioritised bolstering its balance sheet by selling non-core mines and utilising the proceeds to pay down debt. As a result, the firm has amassed a cash-rich balance sheet, allowing it to pay a growing dividend while also investing in increasing its Tier One mining portfolio. These characteristics put the corporation in a good position to achieve its goal of becoming the world’s most valuable gold mining company.

2. BHP Group 

BHP Group is a multi-resources conglomerate. With an emphasis on copper, iron ore, coal, nickel, zinc, and potash, it operates fully integrated mining operations that extract and process ore. Its mining holdings are spread across the globe.

BHP has a petroleum division that produces oil and natural gas, but it is exiting the fossil fuel market. The company is selling its coal assets and combining with Woodside Petroleum (ASX:WPL) in a deal that is expected to finish in 2022. BHP will become a pure-play mining business as a result of the deal.

BHP Group manufactures a variety of commodities, but its main goal is to be a low-cost producer.

mining stocks

It achieves this by efficiently operating massive resource-rich mines and reducing expenses through technologies such as driverless cars. The mining company’s focus on cutting costs also helps to mitigate inflation’s impact.

BHP Group’s low-cost operations are complemented by a robust balance sheet, which it maintains by selling off its least profitable mines and non-core assets on a regular basis.

Even when commodity prices are low, the mining business is well positioned to invest in high-return expansion projects. Its production volumes are quite consistent. While its cash flow is somewhat volatile, BHP’s low costs allow it to generate enough free cash flow to pay dividends and repurchase stock on a consistent basis.

3. Rio Tinto

Rio Tinto is a mining conglomerate with a wide range of operations. It is a major producer of iron ore, aluminium, and copper, three of the most widely used industrial metals. Rio Tinto also mines boron, salt, diamonds, and titanium, amongst other metals and minerals.

Rio Tinto, like BHP Group, aspires to be a low-cost metals and mineral producer. It is able to keep costs down through operating integrated and large-scale mining assets. Rio Tinto’s investments in innovative technology, such as self-driving cars and renewable energy, help the company cut costs and boost production.

Rio Tinto has demonstrated its ability to make money even in down markets. It has a robust balance sheet and sells non-core mines on a regular basis to reallocate cash to more profitable ventures. It offered to buy any outstanding shares of copper miner Turquoise Hill Resources (NYSE:TRQ) that it didn’t already own in 2022, for example. The corporation grows its finest mines on a regular basis and pays down debt quickly. Rio Tinto is another mining corporation that pays dividends to shareholders and buys back its own stock at different times of the economic cycle.

Is it a good idea to invest in mining stocks?

mining stocks

Mining is a capital-intensive and cyclical business. During periods of economic prosperity, mining corporations have more money to spend on new mines and expansion projects. Mining firms, on the other hand, frequently face difficulties due to the lengthy lead periods required to complete projects. Projects that were initiated during boom times are usually not completed until after the cycle has changed, affecting returns.

Investors in mining equities should also pay special attention to how much debt a mining business has. During economic downturns, companies with high debt levels often struggle, whereas companies with low production costs are the most profitable and least likely to rely significantly on debt to fund expansion.

Given these difficulties, investors should concentrate their efforts on the best mining businesses. They’ve demonstrated their ability to make money regardless of the economy. If you don’t mind a little risk and want to receive dividends, adding some high-quality mining stocks to your portfolio can be a good idea.

by Rachel Buscall

by Rachel Buscall

Co-Founder & Managing Director at New Capital Link. Having started her career in the financial sector, Rachel demonstrated a natural flair for entrepreneurship.

New Capital Link

Alternative investment specialists offering structured opportunities across the UK & Overseas.

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies. 

Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

These investments are sometimes held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. https://www.fscs.org.uk/what-we-cover/investments/ or

Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. https://www.fscs.org.uk/check/investment-protection-checker/

The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here. https://www.financial-ombudsman.org.uk/consumers

3. You are unlikely to get your money back quickly

This type of business could face cash-flow problems that delay interest payments. It could also fail altogether and be unable to repay investors their money. 

You are unlikely to be able to cash in your investment early by selling it. You are usually locked in until the business has paid you back over the period agreed. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

4. This is a complex investment

This investment has a complex structure based on other risky investments. A business that raises money like this lends it to, or invests it in, other businesses or property. This makes it difficult for the investor to know where their money is going.

This makes it difficult to predict how risky the investment is, but it will most likely be high.

You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. 

A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest

If you are interested in learning more about how to protect yourself, visit the FCA’s website here: https://www.fca.org.uk/investsmart

For further information about minibonds, visit the FCA’s website here.https://www.fca.org.uk/consumers/mini-bonds