Mining stocks can relieve some of investors’ angst about the economy.
Mining company shares can be volatile along with the price of the underlying commodities they produce. When the economy does poorly and people aren’t buying as much stuff, such as during the height of the pandemic lockdowns, shares of industrial metals producers tend to not do well. The opposite is true when the economy begins to recover, such as during the period after the worst of the pandemic. Gold is a bit of a different animal, as it is considered a safe haven and can rise when there’s lots of angst about the economy. One thing that gold and base metals have in common is that they can be hedges against inflation. But for base metals, at least, an inflationary economy can be a double-edged sword because inflation and related interest rate hikes can put a damper on consumer demand. With these dynamics swirling, let’s dig into six of the best mining stocks to consider this year.
BHP Group Ltd. (ticker: BHP)
The S&P/TSX Global Base Metals Index was ascendant for much of this year, but it’s been faltering recently. Pressure is likely coming from worry that much of the demand for products has already been baked into the proverbial cake. There’s also likely concern about how interest rate hikes could dampen demand for copper and other raw industrial materials. Plus, there’s talk of the “r” word in the U.S.: recession. This may be a good time for bargain hunting in base metals, especially for companies with long track records of success, such as BHP Group, the largest miner in the world by stock market value. BHP is a major producer of copper and iron ore, and will be more susceptible to economic cyclicality than gold-focused companies.
Rio Tinto Group (RIO)
This aluminum, copper and iron ore producer is the second-largest mining company in the world and would be a similar base metals play to BHP. Both produce metals, such as copper, that are essential to the energy transition from fossil fuels to electricity generated from renewable sources such as solar and wind farms. Despite that long-term demand, both stocks are down roughly 16% in the past month through May 17, pushing their dividend yields higher. Rio Tinto “has a strong balance sheet and pays regular dividends,” says Kunal Sawhney, CEO of Kalkine Group.
Glencore PLC (GLNCY)
Glencore mines copper, zinc, lead, coal, gold and other minerals itself. But its marketing, or trading, arm sources commodities from other companies as well and sells them to customers around the globe. In the first quarter, Glencore’s production of copper and zinc, its two biggest commodities by tonnage, fell 14% and 15%, respectively. But its marketing department did well during the quarter amid high volatility. “Extrapolating our Q1 performance would see our marketing segment’s full-year earnings comfortably exceeding the top end of our long-term adjusted EBIT guidance range,” Glencore CEO Gary Nagle said.
Freeport-McMoRan Inc. (FCX)
This major mining company is one of the largest copper miners in the world and is a major producer of molybdenum, which is used to alloy steel. Those are economically cyclical commodities. But Freeport also is a major gold miner, and that offers investors some cushion as gold prices can rise even if economic worries cause base metals, such as copper, to fall. A risk is that investors will sell gold if they need money to deal with other investments that aren’t doing as well. The precious metal can also decline if investors move into Treasurys, which are also a safe haven but pay income, which gold itself doesn’t.
Newmont Corp. (NEM)
For a purer play on gold, consider Newmont, the biggest gold miner in the world by ounces produced. One reason gold tends to do well in times of inflation is because the precious metal is priced in U.S. dollars. When the greenback loses value, that makes gold cheaper for those using other currencies, potentially boosting demand. With gold on the backfoot at the moment because of rising interest rates that make U.S. government debt more attractive, Newmont’s shares have also been declining. But they’re still up about 6% year to date through May 17.
Barrick Gold Corp. (GOLD)
Barrick takes second place as the world’s largest gold miner by production, but its shares have been outperforming Newmont’s, rising about 8% so far this year through May 17. In the first quarter, it realized a gold price of $1,876 per ounce, up from $1,777 in the prior-year quarter. But its costs increased and it produced less gold. For all of this year, Barrick estimates it will produce 4.2 million to 4.6 million ounces, bracketing the 4.4 million it produced in 2021. “Barrick Gold could be one of the value stocks to consider,” Sawhney says.
6 mining stocks to buy in inflationary climates:
— BHP Group Ltd. (BHP)
— Rio Tinto Group (RIO)
— Glencore PLC (GLNCY)
— Freeport-McMoRan Inc. (FCX)
— Newmont Corp. (NEM)
— Barrick Gold Corp. (GOLD)
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6 Best Mining Stocks to Buy for 2022 originally appeared on usnews.com
Update 05/18/22: This story was published at an earlier date and has been updated with new information.
