Investing in Mining Stocks

Updated: Aug. 25, 2020, 4:49 p.m.

A mining company explores for, extracts, and processes deposits of valuable minerals and materials. These substances include:

  • Precious metals such as gold, silver, platinum, and palladium
  • Industrial metals like iron ore, copper, aluminum, nickel, lithium, cobalt, and zinc
  • Construction materials such as sand, crushed stone, and limestone
  • Energy materials including coal, oil sands (bitumen), and uranium
  • Fertilizers like boron, potash, and phosphate
Stay up to date

The mining industry is rapidly changing in the current economic climate. Check out the latest articles in the feed below.

Icon person with chart

Many of these metals and materials are crucial to support the global economy. Because of that, they're in high demand during periods of expansion, which drives up prices, boosting miner profitability. However, the opposite happens during an economic recession.

Because of that, investors need to choose mining stocks carefully. Here's a look at some of today's best mining stocks, followed by instructions on how can pick your own mining companies to invest in.

Top mining stocks to buy

With those characteristics in mind, here are some of the top stocks in the mining sector:

Company Description
Barrick Gold (NYSE:GOLD) Gold and copper mining
BHP Group (NYSE:BHP) Diversified mining as well as oil and gas production
Rio Tinto (NYSE:RIO) Industrial metals mining

Source: Company websites

Here's a closer look at these top mining companies.

1. Barrick Gold

Barrick Gold (NYSE:GOLD) is one of the largest gold miners in the world, with operations in more than a dozen countries. It's also a leading copper producer.

One thing that sets Barrick Gold apart from other precious metals companies is its focus on Tier One mining assets. It defines a Tier One mine as one that:

  • Produces more than 500,000 ounces per year
  • Has at least 10 years of productive life remaining
  • Delivers total cash costs per ounce in the lower half of the industry cost curve

These mines produce low-cost gold and copper relatively steadily, which enables Barrick to continue making money during periods of lower prices.

Barrick Gold has also made it a priority in recent years to strengthen its balance sheet by selling noncore mines and using the cash to repay debt. As a result, the company has built up a cash-rich balance sheet, which provides it with the financial flexibility to pay a growing dividend and invest in expanding its Tier One mining portfolio. Those factors put the company in a strong position to deliver on its vision of becoming the most valued gold mining business in the world.

2. BHP Billiton

BHP Billiton (NYSE:BHP) is a diversified resources company. It operates mining assets in Australia and in North and South America that focus on copper, iron ore, coal, nickel, zinc, and potash. It also has a petroleum business that produces oil and gas.

While BHP Group produces several commodities, it aims to be a low-cost producer. It does that by efficiently operating large resource-rich mines and using technology to drive down costs. The company typically operates fully integrated mining assets that extract ore and process it at hubs. BHP Group also uses cutting-edge technology such as autonomous vehicles to reduce costs and improve production efficiency.

BHP Group complements its low-cost operations with a strong balance sheet, which it often bolsters via the sale of higher-cost mines. Those factors provide the company with the financial flexibility to invest in high-return expansion projects throughout the commodity-price cycle. That supports its production and cash flow so that BHP can return value to shareholders via dividends and share repurchases.

Four industrial trucks and machines in a mining area with piles of raw material

Image source: Getty Images

3. Rio Tinto

Rio Tinto (NYSE:RIO) is a diversified mining company. It's a leading producer of the three most consumed industrial metals -- iron ore, aluminum, and copper -- as well as a variety of other metals and minerals, including boron, salt, diamonds, and titanium.

Like BHP Group, Rio Tinto aims to be a low-cost producer of the metals and minerals it mines. It's able to keep costs down by operating large-scale, integrated mining assets. It also invests in new technologies that reduce costs and increase productivity, such as by powering its operations with renewable energy and using autonomous vehicles to transport materials. These characteristics enable Rio Tinto to make money even during weaker market conditions.

Rio Tinto also has a strong balance sheet. The company routinely sells noncore mines so it can reallocate cash to other opportunities, including mine expansions and debt reduction. Because of that, it's also able to return cash to shareholders via dividends and a share repurchase program throughout the market cycle.

Related topics

How to invest in the mining industry

I admire the companies outlined above, but you can pick your own great mining stocks to invest in, too! With the right guidance and determination, you can make some excellent investments in this field. Your first step is to learn about the industry.

The mining industry is both highly cyclical (it rises and falls with the overall economy) and capital-intensive, because mines are expensive to build. The sector has gotten itself into trouble in the past by investing lots of money to build new mines during periods of economic growth only to have them come online right as conditions begin to slow. These moves have saddled them with mounds of debt that they’ve struggled to pay off amid lower pricing for their products. As a result, most mining stocks have underperformed the market over the years.

Investors need to focus on mining companies that can weather the inevitable downturn. The two most important characteristics to look for are low production costs and strong balance sheets (i.e., an investment-grade bond rating, lots of cash and borrowing capacity, and manageable debt maturities). By keeping production costs low, a miner should be able to remain profitable during weak periods. And a strong balance sheet will provide it with the financial flexibility to weather an economic storm.

Built to last

Mining can be a tough business. That's why investors need to focus on miners that can make it through the inevitable downturn, which means having low-cost operations and a strong balance sheet. Those factors will enable a mining company to continue returning value to its investors via dividends and buybacks during tough times, while positioning them to increase shareholder value when conditions improve.

Recent articles

17171920167_b5afce5167_k

5 "Buffett Stocks" Buffett Didn't Actually Buy

Warren Buffett's investing acumen is legendary -- but he's not behind every stock in Berkshire Hathaway's portfolio.

Two Hundred Dollars Cash Money Invest Retire Stocks Getty

Got $200? Here Are the Best Stocks to Buy During a Stock Market Crash

If equities continue to tumble, investors should go on the offensive by purchasing these four top stocks.

An open pit copper mine.

Why Turquoise Hill Resources' Stock Is Tanking Today

The mining company and its controlling shareholder have agreed on a funding plan.

gold bars on a wooden background

3 Gold Stocks to Buy Right Now

Volatility is shaking the market again -- time to check in with the leading gold picks.

16756860934_faa2f0e9f8_k

Warren Buffett's 4 Most Surprising Q2 Moves

The Oracle of Omaha and his investment team made some very unusual trades in the second quarter.

Gold Bar Ingot Precious Metal Invest Inflation Fear Panic Mining Stock Getty

Warren Buffett Just Bought a Gold Stock -- or Did He?

All is not what it seems at Berkshire Hathaway.

Folded Money Cash Invest Retire Social Security Treasury Getty

Warren Buffett's 3 Biggest Buys in 2020

The Oracle of Omaha has spent between $563 million and $6.8 billion scooping up shares of these three companies this year.

featured-transcript-logo

BHP Group Ltd (BHP) Q2 2020 Earnings Call Transcript

BHP earnings call for the period ending June 30, 2020.

Buffett APPROVED 3

Warren Buffett's Shocking New Investment

Here's what Buffett just bought and what you should know about it.

Gold question mark

S&P 500 News: Buffett Sells Oil Stocks, Buys Gold Miner; GM Shares Surge on EV Spinoff Idea

Berkshire Hathaway disclosed some changes to its portfolio after trading Friday, while one analyst keeps pushing for General Motors to make its electric vehicle business a stand-alone company.