How to invest in mining stocks: How to make good returns by investing in mining stocks a disciplined approach


Russia is a major producer and exporter of aluminum, copper, steel, and nickel. Given these challenges, investors should focus on the top mining companies. They have proven their ability to generate profit regardless of economic conditions. If you are comfortable with some volatility and if receiving dividends is a priority for you, then adding some high-quality mining stocks to your portfolio might be the right move.

Mining companies are exposed to several unique risks including fluctuations in commodities prices, geopolitical factors where mines are located, and finding lucrative geological areas to stake a claim. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. Delivers total cash costs per ounce in the lower half of the industry cost curve. Barrick Gold is one of the largest gold miners in the world, with operations in more than a dozen countries.

If you are comfortable with some volatility, and, if receiving dividends is a priority for you, then adding some high-quality mining stocks to your portfolio might be the right move. The mining sector has been a traditional hedge against inflation. Commodity prices have been on a rollercoaster amid geopolitical unrest, rising inflation, and high interest rates. According to an industry analysis report by Research and Markets, the global mining industry was valued at $1.8 trillion in 2021 and is expected to reach a value of $2 trillion in 2022.

These companies reinvest earnings back into the company to fund growth. Instead, they sell the deposit to a larger miner and move on to search for another one. In this sense, junior mining stocks form an exploration pipeline that feeds the major miners in the end. In this view, the big risks and rewards mostly reside at the junior mining level. It’s a leading producer of the three most-consumed industrial metals — iron ore, aluminum, and copper.

BHP Group combines its low-cost operations with a strong balance sheet, which it strengthens by routinely selling its least-profitable mines and non-core assets. A junior company is a small company that is looking to find a natural resource deposit or field. These studies independently verify the worth of a deposit. A feasibility study takes the estimated size and grade of the deposit and balances it against the costs and difficulties of extracting it all. If the deposit will fetch more money on the market than it costs to dig up, then it is feasible. The second fate occurs when a junior has enough success to justify a major paying a decent premium to gobble it up, leading to decent returns all around.

TD Securities Managing Director and Head of Mining Equity Research, Greg Barnes, appeared in an interview on MoneyTalk where he shared his insights and outlook for the mining sector. Greg Barnes said that mining projects are «difficult to build and very expensive» and that in the near term he expects headwinds for the sector and supply constraints. However, in the long term, he thinks «the stage is being set» for a «potential super cycle» primarily driven by an increase in demand for battery metals such as copper, nickel, cobalt, and lithium. Investors in mining stocks should be keenly aware of both the mining industry’s cyclicality and its capital-intensive nature. The best mining companies have proven abilities to generate profit regardless of economic conditions.

That’s a concern for investors in 2022 given the worries that surging inflation will force central banks to raise interest rates, which could tip the global economy into a recession. This makes them an ideal destination for risk capital, but hardly the best place to put your Social Security checks. If you are looking for a lower-risk stock with the potential for dividends and some decent appreciation, then major mining stocks may be for you. Like BHP Group, Rio Tinto aims to be a low-cost producer of metals and minerals. It’s able to keep costs down by operating mining assets that are integrated and big.

Arguably, Mittal would fit this description or more recently, Bill Beament’s efforts at Northern Star Resources are another example. Although BHP Group produces several commodities, it primarily aims to be a low-cost producer. It efficiently operates large resource-rich mines and uses technology such as autonomous vehicles to reduce costs. The mining company’s focus on minimizing expenses also helps to mute the impact of inflation. A change in the market value of a mineral that makes up a larger percentage of the deposits will have a much larger effect than a new deposit or a failed deposit.

A Beginner’s Guide to Mining Stocks

Junior mining stocks are considered growth stocks because they are in the beginning stage of mining, where they need to discover a specific commodity in the ground, mine it, refine it for sale, and sell it. These are higher-risk stocks but the upside potential can be great. Major mining stocks are value stocks as they are companies that are firmly established in the sector. The majors are well-capitalized companies with decades of history, world-spanning operations, and slow and steady cash flow. Major mining companies are no different from large oil companies, and many of the same metrics apply with a mining twist.

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Here are a few things that you should know before adding mining stocks to your portfolio. It is used by people concerned about the environmental effects of mineral depletion, as well as people bullish on mining stocks. Many of these metals and materials are crucial to the global economy.

rio tinto

Industrial metals such as iron ore, copper, aluminum, nickel, lithium, cobalt, and zinc. Junior equity is corporate stock that ranks at the bottom of the priority ladder for dividend payments and bankruptcy repayments. If a mining major has hundreds of deposits staked or being mined, the contents of any single deposit aren’t likely to shake the stock value too much. A major is the sum of all the deposits with the aforementioned goodwill tied to history.

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Andrew Beattie was part of the original editorial team at Investopedia and has spent twenty years writing on a diverse range of financial topics including business, investing, personal finance, and trading. Want more industry insights, company and product updates? Volatility in both the buying and selling of natural resources commodities creates tremendous complexity, but also tremendous profit opportu… “The future value of every investment is a function of its present price”. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Diversification is an investment strategy based on the premise that a portfolio with different asset types will perform better than one with few.

The mining company is well-positioned to invest in high-return expansion projects even when commodity prices are low. Although there’s some variability to its cash flow, BHP’s low costs enable it to generate free cash flow to reliably pay dividends and repurchase stock. The junior mining stocks are very nearly the exact opposite of mining majors. They tend to have little capital, short histories, and high hopes for huge returns in the future. A junior company is essentially a smaller or newer company that is developing or seeking to develop a natural resource deposit or field.


To determine the best mining stocks to buy now, we reviewed the mining industry and identified key companies in the space. We looked at their projects, resources, and fundamentals. Finally, we narrowed down our selection to companies that had solid projects and pipelines, as well as positive market sentiment. We have arranged these stocks according to their popularity among elite hedge funds. While the near-term outlook for the mining sector is somewhat cloudy and bleak, some analysts see the mining industry heading into a supercycle over the next couple of years.

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Moving forward, the global mining industry is poised to grow at a CAGR of 12.9% through 2026 and reach a valuation of $3.35 trillion. While these numbers look promising, the mining industry is faced with a multitude of challenges. Russia’s invasion of Ukraine and its escalation is impacting the global commodities market and the London Metal Exchange is considering placing sanctions on Russian metals.

A junior mining stock lives or dies on the results of its feasibility studies. The service requires full JavaScript support in order to view this website. The service requires full cookie support in order to view this website. So today, we will look at how to invest in mining companies using the principles of value investing. We view mining as a valuable and potentially lucrative activity. Like Barrick, BHP Group’s dividend has some variability.

Is using a security service for protection against online attacks. Consciously assess the board and management team.Welook for a disciplined record in effective allocation of capital throughout the cycle combined with a track record of shareholder returns. An investor should also look for the board and management’s skills and experience in “consolidating” assets at the right point in the commodity cycle.

The company pays out at least 50% of its profits each reporting period in dividends, so its dividend outlay will rise or fall with its cash flow. A junior mining stock typically sees the most action leading up to, and immediately after, a feasibility study. If the study is positive, then the value of the company may shoot up. Often, a junior miner won’t mine a feasible deposit to the end. In the third and most rare fate, a junior finds a large deposit of a mineral that the market wants a lot of; it is a magical combination of the right deposit at the right time.

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