Sector Screener: prospects for this top sector and a FTSE 100 giant

While the FTSE 350 index has enjoyed a purple patch over recent months, several mining stocks have vastly outperformed it. Indeed, the industrial metals and mining sector has surged 82% higher over the past year. This represents a 65-percentage point outperformance of the stock market’s still impressive 17% gain.

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Clearly, the relative cyclicality of the sector means that its short-term prospects are highly uncertain amid an opaque economic and geopolitical outlook. But, on a long-term view, could mining stocks still prove to be a worthwhile investment when compared with the wider FTSE 350 index?

Long-term economic growth

Although inflation in major developed economies such as the US, UK and the eurozone remains substantially above target, it is forecast to decline over the medium term. In fact, it is set to stand at just 2.2% in the UK by the end of next year, with it expected to meet the 2% central bank inflation target in the US and the eurozone by the end of 2028.

This should ultimately provide scope for interest rate cuts that, once times lags have passed, bolster the world economy’s growth rate. In turn, this is likely to raise demand for a variety of commodities that are used extensively in highly cyclical sectors such as industrials and construction, which may act as a catalyst on their prices. This could lead to improved financial performance among mining companies over the coming years that lifts their share prices.

Net-zero opportunities

The mining sector is also likely to benefit from sustained high demand for several commodities as the world persists with its goal to achieve net zero. In many cases, FTSE 350 mining stocks have pivoted over recent years towards commodities including copper, iron ore and lithium that are used extensively in applications such as renewable energy infrastructure and electric vehicles, and which are therefore key to the process of decarbonisation.

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Such firms are likely to benefit from higher commodity prices over the coming years that may act as a catalyst on their bottom-line growth rate. This could result in further share price gains that allow the wider industrial metals and mining sector to continue its outperformance of the FTSE 350 index over the long run.

Short-term threats

Despite the presence of material long-term growth catalysts, share price volatility among mining firms is likely to remain elevated in the near term. Persistent above-target inflation in several developed economies could yet prompt monetary policy tightening, such as that recently enacted in the eurozone, which acts as a drag on the world economy’s growth rate. Elevated geopolitical risks including an ongoing global trade war and conflict in the Middle East and elsewhere could do likewise.

Indeed, the International Monetary Fund (IMF) expects global GDP growth to fall by 50 basis points in the current calendar year to 3%. Any deterioration in its prospective performance could act as an additional weight on investor sentiment towards the mining sector and, therefore, negatively affect its performance relative to the wider index. 

Source: ShareScope. Data at 9 September 2026. Past performance is not a guide to future performance.

Focusing on fundamentals

As a result, it is crucial for investors to focus only on mining firms that have the financial means to overcome an uncertain economic period. For example, modest debt levels and well-covered finance costs could allow them to continue to invest in new projects even during periods of economic uncertainty.

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Similarly, mining firms that are seeking to diversify both in terms of the commodities they produce and their geographical footprint, could prove to be less risky than pure-play peers which rely on a small number of countries for their returns. Furthermore, by considering only those stocks that still offer a margin of safety, even after strong recent performance, investors may find it easier to ride out potential volatility.

Growth potential

Source: ShareScope. Data at 9 September 2026. Past performance is not a guide to future performance.

FTSE 100 member Rio Tinto  Ordinary Shares (LSE:RIO) appears to offer good value for money on a long-term view. The mining company trades on a price/earnings (PE) ratio of 15.5, less than the UK large-cap index’s earnings multiple of 17 even after its shares have risen by 67% over the past 12 months. The prospective PE is even less at just over 12. This suggests there could be scope for an upward rerating that has a further positive impact on its share price performance.

Indeed, the firm is currently forecast to deliver a 12% annualised rise in earnings per share over the next two financial years. As well as being relatively well placed to benefit from an improving global economic outlook over the medium-to-long term, the business is set to capitalise on the world’s aim of achieving net zero over the coming decades due to its focus on commodities such as iron ore, copper and lithium.

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The firm’s latest half-year results showed it is becoming less dependent on iron ore. In fact, copper, aluminium and lithium contributed 57% of the company’s profits in the first half of the current financial year. This compares with a figure of 44% in the same period of the previous year and suggests that the firm’s overall risk profile may be improving.

Total return prospects

As well as having upward rerating potential and forecasts for a brisk increase in profits, Rio Tinto’s total return may be boosted by its income prospects. It currently has a forward yield of 4.8%, for example, which is around 180 basis points higher than that of the FTSE 350.

Certainly, a dependency on volatile commodity prices and relative cyclicality mean it is unlikely to provide a stable or resilient income on which investors can depend. But with the firm having a payout ratio of 60% that is within its target range, shareholder payouts could reasonably be expected to rise at a similar pace to upbeat profit growth forecasts.

Sound finances

Of course, as per the wider mining sector, Rio Tinto’s share price is likely to remain relatively volatile over the short run. This could mean that new investors experience paper losses as elevated inflation, potential interest rate rises and the prospect of relatively weak global GDP growth persist.

However, the company has a sound balance sheet through which to overcome near-term challenges. For example, its net debt-to-equity ratio amounted to just 20% at the time of its half-year results in June. In the first half of the current financial year, moreover, the firm’s net finance costs were amply covered 10.7 times by operating profits.

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Separately, the business is seeking to become more efficient through a major productivity programme. In the first half of the current year, for example, it banked $870 million (£642 million) in productivity benefits. Over the five years to 2030, it expects to achieve a 4% annualised reduction in operating unit costs that should have a further positive impact on its bottom line.

Risk/reward ratio

Although Rio Tinto’s financial and share price performance could come under pressure from economic uncertainty and geopolitical risks in the short run, it appears to offer a relatively favourable risk/reward ratio on a long-term view.

With a relatively attractive market valuation, sound fundamentals and upbeat growth prospects, it seems to be well placed to deliver sector-beating, as well as index-beating, performance over the coming years. 

Robert Stephens is a freelance contributor and not a direct employee of interactive investor.