The Metals & Mining industry includes all those companies that are involved in activities such as locating, excavating, and processing metals and minerals around the world. These companies mine global reserves for metals and minerals, which have several applications, including industrial uses, jewellery making, and investments. The companies in the industry mine for-profit and their total expenditure to do this can run in billions of dollars to set up a mine alone.
Metals are categorised into precious metals such as gold, silver, and platinum and non-precious or industrial metals such as steel, copper, aluminium, lead, and zinc. Mineral mining includes the extraction of minerals such as coal, chalk, gravel, clay and shale as well as precious gemstones like diamonds. The industry was hit hard by the pandemic with severe supply chain disruptions and intermittent mine closures. The months following the outbreak of the pandemic were a volatile one for the metals & mining sector as the demand and prices fell sharply initially but then commodities saw multi-year highs in 2021.
QUICK TAKEAWAYS
- To invest in the metals & mining industry, you can buy stocks and ETFs of mining companies or make direct purchases of the physical metals themselves.
- For the purpose of investing, the companies in the industry are split into two groups – majors and juniors.
- Majors are companies that have a long history, a large portfolio of proven and probable reserves, global operations, and steady cash flows.
- Conversely, juniors are smaller, newer companies that have lesser capital and are in the process of building their portfolio of reserves.
- The value of the stocks of mining companies is in line with the market value of their reserves.
- BHP is the largest mining company in the world as per its market cap of $124.72 billion as of October 2022.
- The industry is influenced by global commodity prices, feasibility studies, the economic cycle, and demand from other industries such as EVs.
- Moving forward, the industry will have to focus on offering low-carbon products, find newer financing models, and integrate technology for more efficient and targeted mining.
STATS CORNER
MARKET VALUE OF THE GLOBAL MINING INDUSTRY AS OF 2021
$1,825.21 billion
(Source)
GROSS OUTPUT OF THE US MINING INDUSTRY AS OF 2021
$628.5 billion
(Source)
KEY PLAYERS
[WORLDWIDE, BY MARKET CAP]
(source: Statista | As of Oct 2022)┬а
[THE UNITED STATES, BY REVENUE]
| Company Name | Revenue Generated | Revenue Generated | Revenue Generated | Revenue Generated | Revenue Generated |
| 2022 | 2021 | 2020 | 2019 | 2018 | |
| Freeport-McMoRan Inc. (Oct-Sep) | $23.186B | $21.176B | 13.614B | $14.175B | $19.985B |
| Southern Copper Corporation (Oct-Sep) | $10.051B | $10.462B | $7.489B | $7.126B | $7.266B |
| Newmont Corporation (Oct-Sep) | $12.105B | $12.213B | $11.083B | $8.821B | $7.140B |
| Peabody Energy (Oct-Sep) | $4.621B | $2.790B | $3.261B | $4.903B | $5.702B |
| Arch Resources (Oct-Sep) | $3.671B | $1.763B | $1.656B | $2.395B | $2,360B |
* as of Sept 2022
(source: Macro Trends)
- Freeport-McMoRan Ind. (NYSE: FCX): Freeport-McMoRan Inc. is a mining company that operates in North America, South America, and Indonesia. The company primarily explores copper, gold, molybdenum, silver, and other metals, as well as oil and gas.
- Southern Copper Corporation (NYSE: SCCO): Southern Copper Corporation mines, explores, smelts, and refines copper and other minerals in Peru, Mexico, Argentina, Ecuador, and Chile.
- Newmont Corporation (NYSE: NEM): The largest gold-mining company in the world, Newmont CorporationтАЩs portfolio includes mines across five continents – North America, South America, Africa, and Australia. The company also mines silver, copper, nickel, lead, zinc and other metals.
- Peabody Energy (NYSE: BTU): Peabody Energy is the largest coal supplier in the US and one of the largest private-sector coal providers in the world. It owns mines across the US and Australia and also markets and brokers coal from other coal producers.
- Arch Resources (NYSE: ARCH): The second-largest coal supplier in the US, Arch Resources and its subsidiaries operate four large metallurgical mines. In addition to metallurgical coal, the companyтАЩs product portfolio includes bituminous coal, sub-bituminous coal, and thermal coal.
KEY DRIVERS
- Feasibility studies: All mining companies need to conduct feasibility studies to know the size, grade, and quantity of deposits in any given reserve. It’s through this study that the company decides whether the deposit will make more money than the cost of extraction and if it is worth the difficulties and effort. While the major mining companiesтАЩ stocks are not impacted by the contents of one deposit, for the junior companies the feasibility studies can dramatically impact the stock value. When the feasibility study is positive, the stocks of the junior company see an almost immediate increase in value, while the opposite is true in case the study turns out negative.
- Cyclicality and debt: The growth prospects for mining companies depend primarily on how much money they have to invest in mine exploration and expansion. Hence, the industry is capital intensive and is impacted by the economic cycle. In times of economic boom, companies are able to take on debt and start new projects. However, the lead times for projects are long, and they are often not finished before the economic conditions change. Companies that rely heavily on debt find it difficult to cope during periods of economic downturns, which reflects in their profitability and stock price.
- Global commodity prices: Stocks of mining companies are directly impacted by the change in global commodity prices. When the prices of metals are high, they not only translate to higher profits for companies in the industry but also change their value and outlook. Mining exploration companies tend to generate higher stock returns in the short term when metal prices are high and negative returns when the prices are low. Generally, it is seen that stocks of mining companies tend to outperform underlying commodity prices during bull markets and underperform during bear markets.
- Electrification of mobility: The global adoption of Electric Vehicles (EV) is increasing rapidly, and industry estimates predict that most forms of urban transport such as cars, buses, taxis, and trucks will be electric in the next 15 years. This is also increasing the demand for certain metals and minerals and hence increasing the revenue of mining companies. For instance, copper is used five times more in an EV than in a conventional ICE vehicle and its overall demand is expected to increase by 12% to 15% in the coming years. Battery metals such as lithium, cobalt, nickel, and graphite are also going to see an exponential increase in demand. This is going to lead to challenges such as supply deficits. Companies that continue to invest in innovation and focus on increasing production and exploring new resources will continue to see their profits and stock prices increase.┬а
WHAT DOES THE FUTURE HOLD?
As modern society is preparing for the transition to a low-carbon economy that is mineral-intensive, the prospects of the metals & mining industry will continue to grow rapidly. Hence, mining companies must focus on investing in exploration projects for low-carbon products. The industry also has to work at reducing its own emissions by using renewable energy to power its operations.
Mining companies will also have to look at integrating breakthrough technology such as block caving and biomining to venture into areas where extraction was not previously economically feasible. This is the need of the hour as most mineral reserves in low-risk areas are close to being exhausted. Automation and digitalisation will also help companies make their mining operations more targeted and efficient. To be able to finance such mining projects and technology adoption, companies will have to enter into joint ventures and consider M&As as well as new financing models.┬а
The metals & mining market is expected to grow to $2.42 trillion at a CAGR of 7% by 2025. To participate in this growth, download the Appreciate App and invest in stocks of the biggest mining companies in the world.
