Stockopedia’s Ben Hobson takes a close look at some exciting players in this cyclical sector.
One of the defining features of markets over the past year has been the remarkable rally in the mining sector. With mined commodities hitting new highs in recent months, stock prices have been soaring. But in a sector that’s notoriously cyclical, valuations remain modest in places, which is encouraging news for those who believe that we’re on the cusp of a new mining supercycle.
Between 2000 and 2015, mining stocks rode a wave of demand driven by, among other things, economic growth in China. But soon after, commodity prices slumped and the sector fell out of favour among equity investors. In particular, small-cap mining exploration firms became a byword for speculative, lottery-like investments where the payoffs could be big but the chances of success were very low.
With Covid, the big fear for mining was that the world economy would be paralysed. But in reality, the initial shock quickly subsided and government stimulus has helped to reinvigorate the sector.
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One area where we’ve seen this has been in green technologies and the growing popularity of electric vehicles. EV batteries call on the use of platinum group metals - palladium, platinum and rhodium - and the prices of these precious industrial metals have soared over the past year. So, too, have the share prices of companies that produce them.
Meanwhile, just this week, the price of copper has jumped to a new high and iron ore, too, has risen sharply on hopes that the world economic recovery will continue.
For investors, these factors have brought mining stocks into focus. Not only have there been some very strong price gains from a range of shares - in terms of size and specialisation - over the past year, but the dividend yields on them remain attractive as well.
This week, we’ve put together a screen that simply looks for mining and metals industry companies that qualify as “Super Stocks”, which means they rank at the top of the market for their exposure to: high quality, attractive valuation and strong momentum. There are currently eight companies that achieve it. We’ve sorted the list based on how close they are currently trading to their 52-week high prices.
|Name||Mkt Cap (£m)||P/E Ratio||Price vs. 52w High %||Forecast Yield %||StockRank Style|
|Atalaya Mining (LSE:ATYM)||483.6||12.1||-2.51||-||Super Stock|
|Ferrexpo (LSE:FXPO)||2,854||5.3||-3.23||7.5||Super Stock|
|EVRAZ (LSE:EVR)||9,945||11.1||-3.53||7.7||Super Stock|
|Rio Tinto (LSE:RIO)||105,897||10.4||-3.64||8.4||Super Stock|
|BHP Group (LSE:BHP)||117,799||10.9||-3.68||7.3||Super Stock|
|Central Asia Metals (LSE:CAML)||505.2||12.9||-3.69||4.4||Super Stock|
|Sylvania Platinum (LSE:SLP)||375.6||5.6||-8.13||3.2||Super Stock|
|Gem Diamonds (LSE:GEMD)||98.3||7.4||-9.56||2.4||Super Stock|
Most of these stocks are within a few percentage points of their one-year highs, but as is common, many of the price/earnings (PE) ratios look modest given the amount of money some of these companies are making. Their cyclical nature means they often trade at a discount, with investors pricing in the uncertainty that comes with the sector. Copper project developer Atalaya Mining (LSE:ATYM) leads the list, which includes industry giants such as Rio Tinto (LSE:RIO) and BHP (LSE:BHP) through to small-caps such as Sylvania Platinum (LSE:SLP) and Gem Diamonds (LSE:GEMD).
Overall, developments in the world economy are having a very tangible impact on mining stock prices at the moment. Depending on who you listen to, this resurgence in the mining sector may only be the start of a period where supply-demand dynamics really favour metals producers… and their shareholders. So it could be worth keeping an eye on progress in this sector.
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