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Investing in Mining Stocks

Updated: July 21, 2021, 10:26 a.m.

Mining companies explore for, extract, and process 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
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The mining industry is rapidly changing in the current economic climate. Check out the latest articles in the feed below.

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Many of these metals and materials are crucial to the functioning of the global economy. They're in high demand, which boosts prices during periods of expansion. But the mining industry is cyclical, as the COVID-19 outbreak has demonstrated. The prices of mining stocks moved in direct correlation with the severity of the pandemic, including beginning to recover in 2021.

Let's dig into some of 2021’s best mining stocks and take a closer look at investing in the mining industry.

Top mining stocks to buy in 2021

These are some of the top mining companies:

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 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

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

Barrick Gold has in recent years prioritized strengthening 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 Group is a diversified resources company. The company operates fully integrated mining assets that extract and process ore, with a focus on copper, iron ore, coal, nickel, zinc, and potash. These mining assets are located globally, including in Australia and North and South America. BHP also has a petroleum business that produces oil and natural gas.

While BHP Group produces several commodities, it aims primarily to be a low-cost producer. It does that by efficiently operating large resource-rich mines and using technology, such as autonomous vehicles, to reduce costs. The mining company's focus on minimizing expenses also helps to mute the impact of inflation.

BHP Group complements its low-cost operations with a strong balance sheet, which it further strengthens by routinely selling its least-profitable mines and noncore assets. In 2021, BHP unveiled plans to divest from fossil fuel by selling its coal mines and oil and gas assets.

This mining company is well positioned to invest in high-return expansion projects, even when commodity prices are low. Its production volumes and cash flows are relatively stable, enabling BHP to reliably pay dividends and repurchase stock.

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

Image source: Getty Images

3. Rio Tinto

Rio Tinto is a diversified mining company. It's a leading producer of the three most-consumed industrial metals -- iron ore, aluminum, and copper. Rio Tinto also mines 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 mining assets that are integrated and large-scale. Rio Tinto's investments in new technologies, such as autonomous vehicles and renewable energy, reduce costs and increase productivity.

Rio Tinto has proven its ability to make money, even during weak market conditions. It has a strong balance sheet and routinely sells noncore mines to reallocate cash to other, better opportunities. The company regularly expands its best mines and aggressively repays debt. Rio Tinto is another mining company that, at all points in the economic cycle, pays dividends to shareholders and repurchases its own shares.

Should you buy mining stocks?

Investors in mining stocks should be keenly aware of both the mining industry's cyclicality and its capital-intensive nature. Mining companies have more money to invest in new mines and mine expansion projects during periods of economic expansion, but the long lead times required to complete mine projects often cause problems for mining companies. Projects that commence in economic boom times are frequently not completed before economic conditions change once again.

Investors in mining stocks should also pay close attention to how much debt a mining company carries. Mining companies with high amounts of debt are least able to cope with economic downturns. Companies with low production costs are the most profitable and least likely to rely heavily on debt to fund growth.

The best mining companies have proven abilities to generate profit regardless of economic conditions. If you are comfortable with some volatility, and, if receiving dividends is a priority for you, then adding some high-quality mining stocks to your portfolio might be the right move.

Related Investing Topics

FAQs

Are mining stocks a good investment?

Investors in mining stocks should be keenly aware of both the mining industry's cyclicality and its capital-intensive nature. The best mining companies have proven abilities to generate profit regardless of economic conditions. If you are comfortable with some volatility, and, if receiving dividends is a priority for you, then adding some high-quality mining stocks to your portfolio might be the right move.

Can I invest in gold?

There are many benefits to buying gold stocks instead of the physical metal. Gold companies can likely generate higher total returns than simply an investment in physical gold because, when the price of gold rises, these companies can expand their operations and their profits. This growth should enable their stocks to outperform the price of gold. But not all gold stocks outperform the price appreciation of the precious metal, which means that investors need to choose their gold stocks carefully.

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