Does Investment in Mining Stocks Is Good For Long Run?

  • Oct 18, 2019 AEDT
  • Team Kalkine
Does Investment in Mining Stocks Is Good For Long Run?

In the last few months, commodities as well as mining stocks have responded to escalating trade tensions between the US and China. Recently many speculators have responded to the perceived risk of a world recession by significantly shorting metals and commodities. It has been speculated that the current commodity price weakness stemming from short positions could have a negative impact on mining companies. In Australia, where mining has long been a cornerstone of the economy, the fluctuations in commodities’ prices could impact the share prices of Australian mining stocks, particularly ASX mining companies.

Due to the world-wide trend to reduce greenhouse emissions, there is an increase in demand for commodities, associated with tech – applications, battery metals and industrial metals associated with the construction of electric vehicles, including copper (motors) and zinc (panels). The expected demand for electric vehicles has increased significantly in the past few years as many countries have adopted a zero emissions strategy. Mining companies, which are remotely or directly producing commodities to be used in the manufacturing of electric vehicles or electric appliances, are under the radar of many investors.

Let us now look at few ASX-listed mining companies

Rio Tinto Limited (ASX: RIO)

Rio Tinto Limited (ASX: RIO) is primarily involved in the exploration, development, production and processing and marketing of minerals and metals. This mining giant operates a portfolio of world-class assets that generate strong cash flows and produces materials essential for human progress.

In the last five years, RIO’s stock-price has increased by 53.76% as on 17 October 2019.

In the third quarter of 2019, Rio witnessed improved production across the majority of its products, demonstrating its focus on operational performance and disciplined allocation of capital.

Rio Q3 Production Results
  • Pilbara iron ore shipments of 86.1 million tonnes (100% basis) in the Q3 FY19 were 5% higher on pcp;
  • Q3 FY19 bauxite production and shipments to third parties were 9% and 23% higher on pcp, respectively;
  • Aluminium production of 0.8 million tonnes in Q3 FY19 was 3% lower than the third quarter of 2018;
  • Mined copper production of 158 thousand tonnes was 1% lower than the third quarter of 2018;
  • Titanium dioxide slag production of 321 thousand tonnes was 8% higher than pcp;
  • Production at Iron Ore Company of Canada was 3% higher than the corresponding quarter of 2018 and 17% higher than the previous quarter, reflecting a return to normal operating conditions following the flooding incident which impacted June.

At market close on 18 October 2019, RIO’s stock was trading at a price of $87.870 with a market cap of around $32.38 billion.

Newcrest Mining Limited (ASX: NCM)

Leading gold company, Newcrest Mining Limited (ASX: NCM) owns and operates various low-cost, long-life mines. The company’s exploration activity is currently concentrated in four broad regions: Australia, Central America, North America and South America.

Notably, in the past five years, NCM stock-price increased by 234.26% as on 11 October 2019.

Cadia Expansion Project

The company’s Board recently approved the stage 1 of Cadia Expansion Project, which is expected to have a capital cost of around $685 million.

The Cadia Expansion Project has two stages:

Stage 1- Comprises commencement of the next cave development (PC2-3) and an increase in the nameplate capacity of the process plant to 33mtpa

Stage 2- This stage is focussed on a further increase in processing capacity to 35mtpa and recovery rate improvement project

In FY19 (Year ending 30 June 2019), the company earned statutory profit of $561 million, which was 178% higher than the prior financial year. As at 30 June 2019, the company’s leverage ratio was at 0.2x and gearing was at 4.9%.

At market close on 18 October 2019, NCM stock was trading at a price of $33.130 with a market cap of around $25.46 billion.

KGL Resources Limited (ASX: KGL)

Australian copper explorer, KGL Resources Limited (ASX: KGL) uses modern, cost effective exploration methods at its 100% owned Jervois Copper Project in the Northern Territory.

The company recently received assay results of Bellbird, Amigo and Reward prospects at its Jervois Copper Project, indicating the strong potential to extend and increase the underground resource at Bellbird.

Demand for copper is driven by electrical wiring, motors and to a lesser extent, electronics, plumbing and construction.

In the past one year, KGL’s stock prices declined by 21.21% as on 17 October 2019.

At market close on 18 October 2019, KGL stock was trading at a price of $0.240 with a market cap of around $74.35 million.

Galaxy Resources Limited (ASX: GXY)

Australian listed global lithium company, Galaxy Resources Limited (ASX: GXY) owns and operates the Mt Cattlin mine in Ravensthorpe Western Australia (WA) and the James Bay lithium pegmatite project in Quebec, Canada. The company holds positive views about the global lithium demand outlook and intends to establish itself as a major producer of lithium products.

For the half year ended 30 June 2019, the company produced 98.3k tonnes of spodumene and sold 44.6k tonnes. The company earned an EBITDA of USD 9.4 million and incurred a Statutory loss of USD 171.9 million.

Notably, in the past five years, GXY’s stock has witnessed an improvement of 478.13% in its share price. However, in the last one year, the stock price has declined by 60.30% as on 17 October 2019. At market close 18 October 2019, GXY’s stock was trading at a price of $0.910 with a market cap $378.77 million.

GXY Five Year Stock Price Chart (Source: Company's Report)

Northern Star Resources Ltd (ASX: NST)

Gobal-scale Australian gold producer Northern Star Resources Ltd (ASX: NST) has a portfolio of low-cost, high-grade underground gold mines. The company is progressing to build a strong asset base via strategic acquisitions and aggressive exploration activities.

Echo Resources Acquisition

The company recently acquired a relevant interest in 59.3% of the Echo shares. In relation to its recommended cash takeover offer of A33¢ per share for all the issued shares of Echo Resources Limited, Northern Star has determined that the Offer price of A33¢ per Echo share is its last and final offer, as announced on 18 October 2019.

Notably, in the last five years, NST stock has increased by 739.78% as on 17 October 2019. At market close on 18 October 2019, NST stock was trading at a price of $10.150 with a market cap of $6.56 billion.

To know more about NST click here.


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