How to invest in mining stocks: A Beginner’s Guide to Mining Stocks

cash flow

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. Juniors are riskier ventures, most likely found in commodity exploration, such as oil, minerals, and natural gas. An innovative protein solutions business uses their vertically integrated, global supply chain to distribute grass fed beef across retail, f…

Matthew DiLallo has positions in BHP Group and Woodside Energy Group. The Motley Fool has no position in any of the stocks mentioned. Investing in Gold Stocks This safe-haven metal can be a precious investment. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

This makes them an ideal destination for risk capital, but hardly the best place to put your Social Security checks. If you are looking for a lower-risk stock with the potential for dividends and some decent appreciation, then major mining stocks may be for you. Any person who commits capital with the expectation of financial returns is an investor. Common investment vehicles include stocks, bonds, commodities, and mutual funds. The majors are well-capitalized companies with decades of history, world-spanning operations, and slow and steady cash flow.

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Almost every commercial product has elements that started off buried beneath the earth.


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.

This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. This is a primer and as such, suffers from being overly broad and simplistic. Most common is a failure, which leaves a hole in everyone’s pocket, including that of the banks and investors. Majors are less volatile and more mature, with a large portfolio of claims and a capital cushion used to finance further exploration. Although these two groups have a very different emphasis when they speak it, they are both right; mining is big business.

The largest mining company in the world by market cap is BHP, with a market cap of $180 billion in 2021. The mining industry is rapidly changing in the current economic climate. BHP Group combines its low-cost operations with a strong balance sheet, which it strengthens by routinely selling its least-profitable mines and non-core assets. Industrial metals such as iron ore, copper, aluminum, nickel, lithium, cobalt, and zinc.


Tier One mines produce a relatively steady supply of low-cost gold and copper, enabling Barrick to continue making money when prices are low. Many of these metals and materials are crucial to the global economy. Industries need the raw materials to build and manufacture goods, products, and infrastructure.


Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. Delivers total cash costs per ounce in the lower half of the industry cost curve. Barrick Gold is one of the largest gold miners in the world, with operations in more than a dozen countries.

A Potential Mining Supercycle

The mining company is well-positioned to invest in high-return expansion projects even when commodity prices are low. Although there’s some variability to its cash flow, BHP’s low costs enable it to generate free cash flow to reliably pay dividends and repurchase stock. While the near-term outlook for the mining sector is somewhat cloudy and bleak, some analysts see the mining industry heading into a supercycle over the next couple of years. TD Securities Managing Director and Head of Mining Equity Research, Greg Barnes, appeared in an interview on MoneyTalk where he shared his insights and outlook for the mining sector. Greg Barnes said that mining projects are “difficult to build and very expensive” and that in the near term he expects headwinds for the sector and supply constraints. However, in the long term, he thinks “the stage is being set” for a “potential super cycle” primarily driven by an increase in demand for battery metals such as copper, nickel, cobalt, and lithium.

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. Instead, they sell the deposit to a larger miner and move on to search for another one. In this sense, junior mining stocks form an exploration pipeline that feeds the major miners in the end. In this view, the big risks and rewards mostly reside at the junior mining level. Like BHP Group, Rio Tinto aims to be a low-cost producer of metals and minerals.

Valuing Major and Junior Mining Stocks

Junior equity is corporate stock that ranks at the bottom of the priority ladder for dividend payments and bankruptcy repayments. If a mining major has hundreds of deposits staked or being mined, the contents of any single deposit aren’t likely to shake the stock value too much. A major is the sum of all the deposits with the aforementioned goodwill tied to history. Andrew Beattie was part of the original editorial team at Investopedia and has spent twenty years writing on a diverse range of financial topics including business, investing, personal finance, and trading.

BHP Group

Want more industry insights, company and product updates? Volatility in both the buying and selling of natural resources commodities creates tremendous complexity, but also tremendous profit opportu… “The future value of every investment is a function of its present price”. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Diversification is an investment strategy based on the premise that a portfolio with different asset types will perform better than one with few. An alternative investment is a financial asset that does not fall into one of the conventional investment categories.

Some would argue that mining companies really don’t sit within the value-investing framework because of instability of future earnings. We acknowledge it is difficult predicting future revenue because commodity prices are inherently volatile. However, many facets of mining operations are predictable with high-levels of reliability. For example, production tonnage and costs from a well established mine with an experienced operations crew is predictable.

Like Barrick, BHP Group’s dividend has some variability. The company pays out at least 50% of its profits each reporting period in dividends, so its dividend outlay will rise or fall with its cash flow. A junior mining stock typically sees the most action leading up to, and immediately after, a feasibility study. If the study is positive, then the value of the company may shoot up.

A change in the market value of a mineral that makes up a larger percentage of the deposits will have a much larger effect than a new deposit or a failed deposit. A junior mining stock lives or dies on the results of its feasibility studies. So today, we will look at how to invest in mining companies using the principles of value investing. We view mining as a valuable and potentially lucrative activity.

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