Mining analyst John Meyer reveals his favourite blue-chips mining stocks, his small-cap tips and the share he’d buy now above all others.
Lee Wild, head of equity strategy, interactive investor: Hello. I’m joined today by John Meyer, mining analyst at broker SP Angel. Now John, I would normally ask you for your favourite blue-chip miner, and you’ve liked Rio Tinto (LSE:RIO) in recent years. So the share price has done very well, but do you still like Rio or are other stocks – the big heavyweights – turning your head?
John Meyer, mining analyst at broker SP Angel: I do like Rio Tinto, it has a good mix of metals, which always unsettles things, but I think if China is successful in reducing the iron ore price, then earnings will fall. I don’t think we’re at peak earnings with Rio Tinto. I think the first half of this year is likely to be their peak earnings for a while, purely driven by the iron ore price. And that means that maybe the market might be a little unsettled in that, although I suspect the shares will be pretty solid. But for me, I think the stock that is more likely to do better in the environment that we’re looking at over the next year or so is likely to be Glencore (LSE:GLEN). Because it’s a good trading business, they trade metals, they describe themselves as ‘the DHL of the metal market’.
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They’ve got a very good mix of base metals – so we’re talking about zinc and copper and nickel – and they’re pretty quick at getting into new areas. So for me, I think Glencore is likely to have a better time of it and I’m quite interested to see how that performs and I think it will do well.
Lee: Well look, at the other end of the market, among the junior miners, are there any small caps that stand out as potential winners in the second half of 2021?
John: Well, there’s a whole bunch of companies that I love and I’ve been buying for my own portfolio – Cornish Metals (LSE:CUSN), Bluejay Mining (LSE:JAY), Rainbow Rare Earths (LSE:RBW) and Kodal Minerals (LSE:KOD), for example. So Cornish Metals is into tin, Bluejay Mining is into titanium – which is ilmenite – it’s the titanium concentrates, of course. Rainbow Rare Earths for rare earths, which is very much in demand for offshore wind farms. And Kodal Minerals on the lithium side – in fact, I would recommend Kodal or IronRidge (LSE:IRR) for lithium. And there just aren’t enough well-developed lithium projects around in the world at the moment, and lithium prices seem to be gathering pace at the moment, even for lithium spodumene concentrate.
Lee: If you could buy one mining stock right now – and it can be a heavyweight, it can be one of the juniors – which one would it be and why?
John: Well, I look around for value in the mining sector. I think, what’s been left behind, what’s unloved, what feel cheap at the moment? I come back to Bushveld Minerals (LSE:BMN), which is producing vanadium in South Africa. Now vanadium is a key component for steel. The vanadium price has been held back last year because the price has collapsed and vanadium producers, I think, stockpiled metal and were letting that out. But what we’re seeing is, vanadium prices, at long last, are pushing ahead. The price in China is quite a long way ahead of the price everywhere else, and I don’t see the Chinese government really having any impact on that. And the other side of the vanadium market is vanadium redox batteries, which are going to be increasingly sought after for grid support. So the more wind farms you build, the more solar farms you build, the more storage you need. Because when the wind’s not blowing and the sun’s not shining, you need that energy supply from somewhere else.
And it’s great if you’ve got hydropower, for example, or hydro storage, but there isn’t much of that about – certainly not in the UK. So we need some other form of storage and vanadium redox is very good for longer-term storage for four hours, six hours, eight hours of storage. And as we know, sometimes the sun doesn’t really shine that much in the UK and sometimes the wind is not that great. Although the UK is particularly good for wind, somebody described it as the ‘Saudi Arabia of wind energy’ when it comes to it. But Bushveld Minerals, not only do they make the vanadium, but they’re looking to produce the vanadium electrolyte for the batteries. They’re also involved with the investment into vanadium battery manufacturing through a business called Enerox.
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In fact, they masterminded a deal to create invinity energy systems out of Avalon and redT, and they did very well out of their investment in that, and I think they’ll do the same with Enerox. In fact, I hope they’ll stick with their investment in Enerox while they continue to increase the amount of vanadium that they produce from their primary mines in South Africa. And I think this will do well. We recently saw Sir Mick Davis – who was the former CEO of Xstrata – investing in another vanadium business in Kazakhstan called Ferro-Alloy. And that gives me a great deal of confidence, because he knows the vanadium business really well. He used to run a couple of mining businesses in South Africa, producing vanadium.
And in fact, he acquired another vanadium business in Australia many years ago – but the less said about that the better. But coming back to Bushveld, I see the production growth that they have going, I see costs coming down and I see vanadium prices going up. And for me, that’s a good combination for what I see as an undervalued company.
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