Mining is expected to grow and expand, thanks in part to the strong demand for metals, minerals and government policies. It would be prudent to invest in quality mining stocks like Glencore (GLNCY), Fortescue Metals, and Fortescue (FSUGY), to take advantage of the opportunities that the industry offers. South32 (SOUHY), on the other hand, could be worth adding one's list of watchlist. Read on ....
Global demand for metals and minerals is growing rapidly due to the use of these materials in many applications. Clean energy transitions are also gaining momentum. The mining industry is expected to grow due to the sustained demand for minerals and metals, government investments and initiatives, and adoption of digital technology.
Investors could buy Glencore plc and Fortescue Metals Group Limited for their solid returns, given the promising growth prospects of this industry. It may be better to wait and hold South32 Limited until the stock is more attractive.
The mining industry is positioned to grow robustly in the future, despite macroeconomic headwinds. This will be driven by the high demand for minerals and metals. Minerals are used in transportation, metal fabrication, household appliances and industrial machinery. The demand for minerals will also likely increase sharply, as the energy transformation has gained momentum.
Copper, nickel, cobalt and graphite are critical minerals that are used in the rapidly expanding clean energy technologies of today, including wind turbines, electricity networks and electric vehicles. According to a report from the International Energy Agency, the demand for minerals is expected to increase by 500% in 2040 if we are to achieve net zero.
The mining industry will also benefit from favorable government policies, as well as investments. The Biden-Harris Administration invested $16 million in April to build America's only critical minerals production facility. The funding will be used to support projects in West Virginia, North Dakota and other states that aim to improve the domestic mineral supply chain.
A report by Business Research Company predicts that the global mining industry will reach $2.78 trillion by 2027. This is a growth rate of 6.7%.
Digital mines are transforming the industry. Over the past few years, mining equipment and extraction technology have seen numerous innovations and improvements. Artificial intelligence (AI), for example, can be incorporated into mining equipment to increase their efficiency and productivity. It also ensures miners' safety.
A growing integration of automated technologies in mining operations is also driving demand for innovative solutions and equipment. According to a Grand View Research report, the global market for mining equipment is expected to grow at a CAGR between 2023 and 2030 of 5.1%.
In this context, it may be prudent to buy mining stocks GLNCY or FSUGY. Investors could also add SOUHY stock to their watchlist, and wait for an entry price that is more favorable.
Take a closer view at these fundamentals.
Stocks to buy:
GLNCY, with its headquarters in Baar (Switzerland), is engaged in the production, refining, processing, storing, transporting, and marketing metals, minerals, and energy in the Americas. Europe, Asia and Africa. The company is divided into two segments, Marketing Activities and Industry Activities.
On May 9, GLNCY, Li-Cycle Holdings Corp., (LICY), a leader in the industry of lithium-ion batteries resource recovery, and the largest lithium-ion recycling company in North America signed a letter of intent to jointly study and later develop a hub facility in Portovesme.
The Portovesme hub would produce key battery materials such as nickel, cobalt and lithium from recycled battery material. The Portovesme Hub, in conjunction with GLNCY’s existing footprint for primary supply and recycling battery metals, highlights the company's desire to become a circularity partner of preference for the European battery industry.
On April 27, GLNCY entered into a binding agreement to purchase a 30% stake in Alunorte S.A., and a 45% stake in Mineracao Rio do Norte S.A.
Robin Scheiner said that the acquisition of equity stakes in Alunorte and MRN will provide Glencore exposure to lower-quartile alumina and bauxite. This will enhance our ability to supply this critical material to our customers for the ongoing energy shift.
GLNCY’s non-GAAP forward P/E is 9.28x, which is 32.4% less than the average industry of 13.73x. The forward Price/Sales Multiple of 0.31 is 72.6% less than the average industry multiple of 1.14.
GLNCY produced 244,100 tons of copper from its own sources during the first quarter ending March 31, 2023. Cobalt produced by the company was 10,500 tonnes. This is an 8% increase over last year. The company's attributable ferrochrome output of 400,000 tons was also 3% higher than the first quarter 2022.
GLNCY’s revenue for the fiscal year ending December 31, 2022 increased by 25.6% over the previous year to $255.98 Billion. The adjusted EBITDA increased by 59.7% to $34.06 Billion from the previous year. The company's earnings for the year were $16.51billion and $1.32. These figures are up 279,8% and 256,8% respectively.
GLNCY has seen its revenue and EBITDA increase at CAGRs between 6% and 46.2 over the last three years. The company's normalized income also grew at a rate of CAGR 116.7% during the same time period.
The stock closed the last trading day at $11.59. It has increased by 9.6% in the past month, and 22.5% for the year.
GLNCY POWR Ratings reflect a strong outlook. The stock is rated B overall, which in our rating system translates into a Buy. The POWR ratings assess stocks based on 118 factors, each of which has its own weighting.
GLNCY is rated B in both Momentum and Stability. The stock is ranked 5th out of 43 stocks within the Miners – Diversified Industry.
In addition to the above ratings, we have also given GLNCY a rating for Value, Sentiment, Growth and Quality. All GLNCY ratings are available here.
Fortescue Metals Group Limited
FSUGY is engaged in the exploration, production, processing and sale of iron ores in Australia, China and internationally. It also explores gold and copper deposits. FSUGY also offers port towage. The company's headquarters are located in East Perth, Australia.
On June 14, FSUGY and China Baowu Steel Group Corporation signed a Memorandum of Understanding to work together on reducing emissions in iron and steel production.
The partnership will explore the possibility of reducing emissions in iron production at China Baowu's China operations by using FSUGY iron ore, green hydrogen and R&D in iron ore beneficiation, as well as collaboration opportunities with renewable energy and green hydrogen. Both companies should benefit from this collaboration.
FSUGY and the Nyamal traditional guardians signed a major agreement on June 8 to supply mining equipment to the Iron Bridge Magnetite Project. The $18 million contract is part of the $331 millions in contracts that have been awarded to Nyamal companies since 2019.
The Drill and Blast Program at Iron Bridge is one of the most important aspects for achieving maximum production in the processing facility. Fiona Hick said, "We are delighted that we were able to work with Nyamal in order to deliver this critical capability."
FSUGY currently trades at 7.87x trailing 12-month P/E. This is 43.9% less than the average industry of 14.04x. The stock's forward EV/EBITDA ratio of 4.94x, is 36% less than the industry standard of 7.72x.
FSUGY shipped 46.30 million tonnes of iron ore in the third quarter fiscal 2023. This contributed to a record shipment for the nine-month period ending 31 March 2023 at 143.10 mt. The average revenue for the company was $109 per dry metric tonne. This represents 87% of the average Platts CFR Index of 62%. As of March 31, 2023, its cash balance was $4 Billion.
FSUGY has seen its revenue grow at a CAGR of 9.8% over the last three years. EBITDA (Earnings Per Share) and EBITDA (Earnings Before Interest and Taxes) increased by CAGRs of 5,9% and 5,1% respectively over the same period. The company's total assets also grew at a 9.5% CAGR.
The shares of FSUGY closed the last trading day at $29.88, up 10.7% in the past month and by 31.1% for the year.
The POWR ratings reflect FSUGY’s strong fundamentals and outlook. The rating is B which is equivalent to a Buy in our proprietary system.
FSUGY is rated B for Value, Stability and Quality. It is the top-ranked stock among 43 stocks in the Miners – Diversified sector.
Click here to view FSUGY ratings for Growth Momentum and Sentiment.
Stocks to Watch
South32 Limited (SOUHY)
SOUHY, a mining and metals company based in Perth, Australia, operates in Australia as well as in Southern Africa, North America and South America. The company's portfolio includes assets that produce bauxite and alumina as well as silver, lead zinc, aluminum copper nickel, metallurgical coke, manganese ferronickel and other base materials.
The US Federal Permitting Improvement Steering Council, an independent federal agency confirmed on May 18 that SOUHY’s Hermosa mining project was the first project to be added to the FAST-41/FAST-41 processes.
Hermosa, located in Southern Arizona is the only mine development project that can produce manganese and zirconium, two critical minerals designated by the federal government. These minerals are vital for the future of clean energy in the world. This should be a significant benefit to the company.
SOUHY's forward EBIT/Sales and EV/EBIT ratios of 5.75x & 1.38x respectively are 50.3% & 11.4% below the industry averages, which are 11.57x & 1.56x. The stock's forward Price/Sales of 1.34x is 17.7% more than the industry average 1.14x.
SOUHY’s aluminum production increased by 15% to 847,00 tonnes in the nine-month period ending March 31, 2023. The group's copper equivalent production grew by 7% in the nine months ended March 31, 2023, mainly due to recent investments which have led to strong growth of copper and low carbon aluminum. The company's Australia manganese production also reached a record by increasing by 6% from year to date.
SOUHY's half-year profit, ending December 31, 2022 was down 33.6% on the previous year to $685 millions. The company's earnings underlying $560 million were down 44.2% from the previous year. The company's EBITDA - a measure of underlying earnings - was $1.36 billion. This is a decrease of 27.1% from the previous year.
SOUHY has grown its revenue and EBITDA at CAGRs between 9.8% and 37.8% over the last three years. The company's EBIT also increased at a CAGR of 76% over the same period.
Analysts predict that SOUHY will see its revenue drop 7.6% from the previous year to $8.56 Billion for the fiscal year ending June 2023. Analysts expect the company's fiscal year 2024 revenue to decrease year-over-year, to $8.55billion.
Shares of SOUHY closed the last trading session at $12.75, up 7.2% in the past nine-month period. The stock, however, has fallen 13.3% in the last three months.
The mixed fundamentals of SOUHY are reflected by its POWR ratings. The stock's overall rating is C, which in our proprietary system translates into Neutral.
SOUHY is rated B for Stability. SOUHY has a grade of C for Value, Sentiment and Quality. The stock is ranked 9th out of 43 stocks within the same industry.
Click here to access additional ratings of SOUHY Growth and Momentum.
Death trap stocks lurk in your portfolio
GLNCY's shares remained unchanged in Wednesday premarket trading. GLNCY shares have declined -9.93% year-to-date compared to a 16.92% increase in the benchmark S&P 500 Index during the same time period.
Mangeet K. Bouns
Mangeet became a financial journalist and investment researcher because of her keen interest in the stock markets. Mangeet uses her fundamental approach for analyzing stocks to help investors make informed decisions.