The global demand for critical minerals and metals is increasing significantly due to their use in a vast range of applications and clean energy transitions gathering pace. With sustained demand for minerals, supportive government initiatives and investments, and the adoption of digital technologies, the growth outlook for the mining industry seems bright.
Given the industry’s promising growth prospects, investors could consider buying fundamentally sound mining stocks Glencore plc (GLNCY) and Fortescue Metals Group Limited (FSUGY) for solid returns. On the other hand, it could be wise to hold South32 Limited (SOUHY) and wait for a better entry in this stock.
Despite lingering macroeconomic headwinds, the mining sector is well-placed to witness robust growth in the long run, driven by high demand for metals and minerals. End uses of minerals include transportation, fabricated metal products, household appliances, and industrial machinery. Moreover, the demand will likely grow sharply as the energy transition has picked up momentum.
Critical minerals, including copper, nickel, graphite, and cobalt, are essential components in today’s rapidly growing clean energy technologies, from wind turbines and electricity networks to electric vehicles (EVs). As per a report by the International Energy Agency (IEA), the demand for minerals will increase by nearly 500% by 2040 if the world is to meet net zero as a global goal.
In addition, favorable government policies and investments should boost the mining industry’s prospects. In April, Biden-Harris Administration announced an investment of $16 million to build America’s first-of-a-kind critical minerals production facility. The funding will support projects in West Virginia and North Dakota to strengthen domestic mineral supply chains.
According to a report by the Business Research Company, the global mining market is expected to reach $2.78 trillion in 2027, growing at a CAGR of 6.7%.
Rapid digital mine innovation is further transforming the mining industry. In recent years, there have been numerous improvements and innovations in extraction technology and equipment for mining. For instance, the incorporation of artificial intelligence (AI) in mining equipment boosts their efficiency, enhances the productivity of mines, and ensures the safety of miners.
Also, there is a rising integration of automated technology in mining operations, driving the demand for innovative mining solutions and equipment. Based on a report by Grand View Research, the global mining equipment market is estimated to expand at a CAGR of 5.1% from 2023 to 2030.
Amid this backdrop, buying robust mining stocks GLNCY and FSUGY could be wise. On the other hand, investors could add SOUHY to their watchlist and wait for a better entry point in this stock.
Let’s take a closer look at the fundamentals of these stocks.
Stocks to Buy:
Glencore plc (GLNCY)
Headquartered in Baar, Switzerland, GLNCY engages in the production, refinement, processing, storage, transport, and marketing of metals and minerals, and energy products in the Americas, Europe, Asia, Africa, and Oceania. The company operates through two segments: Marketing Activities and Industrial Activities.
On May 9, GLNCY and Li-Cycle Holdings Corp. (LICY), an industry leader in lithium-ion battery resource recovery and the leading lithium-ion battery recycler in North America, signed a Letter of Intent to jointly study the feasibility of, and, later, develop a Hub facility in Portovesme, Italy.
The Portovesme Hub would produce critical battery materials, including nickel, cobalt, and lithium, from recycled battery content. This project, combined with GLNCY’s existing footprint in the primary supply and recycling of battery metals, underscores the company’s ambition to become the circularity partner of choice for the European battery and EV industry.
On April 27, GLNCY signed a binding agreement with Norsk Hydro ASA, one of the world’s leading low-carbon aluminum companies, to acquire a 30% equity stake in Alunorte S.A. and a 45% equity stake in Mineracão Rio do Norte S.A. (MRN).
Robin Scheiner, Head of Alumina and Aluminum at GLNCY, said, “The acquisition of the equity stakes in Alunorte and MRN provide Glencore with exposure to lower-quartile carbon alumina and bauxite, enhancing our capability to supply such critical material for the ongoing energy transition to our customers.”
GLNCY’s forward non-GAAP P/E of 9.28x is 32.4% lower than the industry average of 13.73x. Likewise, its forward Price/Sales multiple of 0.31 is 72.6% lower than the industry average of 1.14.
During the first quarter that ended March 31, 2023, GLNCY’s own sourced copper production was 244,100 tonnes. The company’s own sourced cobalt came in at 10,500 tonnes, an increase of 8% year-over-year. Also, its attributable ferrochrome production of 400,000 tonnes was 3% above the first quarter of 2022.
For the fiscal year that ended December 31, 2022, GLNCY’s revenue increased 25.6% year-over-year to $255.98 billion. Its adjusted EBITDA grew 59.7% from the prior year to $34.06 billion. In addition, the company’s income for the year and EPS were $16.51 billion and $1.32, up 279.7% and 256.8% year-over-year, respectively.
GLNCY’s revenue and EBITDA increased at CAGRs of 6% and 46.2% over the past three years, respectively. In addition, the company’s normalized net income grew at a CAGR of 116.7% over the same period.
The stock has gained 9.6% over the past month and 22.5% over the past year to close the last trading session at $11.59.
GLNCY’s POWR Ratings reflect this strong outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GLNCY has a B grade in Momentum and Stability. The stock is ranked #5 out of 43 stocks in the Miners - Diversified industry.
Beyond what is stated above, we’ve also rated GLNCY for Growth, Value, Quality, and Sentiment. Get all GLNCY ratings here.
Fortescue Metals Group Limited (FSUGY)
FSUGY engages in the exploration, development, production, processing, and sale of iron ore in Australia, China, and internationally. In addition, it explores copper and gold deposits. Further, FSUGY offers port towage services. The company is headquartered in East Perth, Australia.
On June 14, FSUGY signed a Memorandum of Understanding (MoU) with China Baowu Steel Group Corporation to jointly work on reducing emissions across iron and steel making.
This partnership would explore lower emissions iron making technology at one of China Baowu’s operations in China using FSUGY’s iron ore and green hydrogen, iron ore beneficiation R&D, and collaboration opportunities in renewable energy and green hydrogen. This collaboration should bode well for both companies.
On June 8, FSUGY signed a significant agreement with the Nyamal traditional custodians to supply mining equipment for the company’s Iron Bridge Magnetite Project. This $18 million agreement builds on the $331 million in contracts already awarded to Nyamal businesses since 2019.
“The Drill and Blast program at Iron Bridge represents one of the most crucial aspects to achieving maximum throughput in the processing plant. We are pleased that we have been able to partner with Nyamal to deliver this important capability, said Fiona Hick, FSUGY’s CEO.
In terms of trailing-12-month P/E, FSUGY is currently trading at 7.87x, 43.9% lower than the industry average of 14.04x. Also, the stock’s forward EV/EBITDA of 4.94x is 36% lower than the industry average of 7.72x.
In the third quarter of fiscal 2023, FSUGY’s iron ore shipments came in at 46.30 million tonnes (mt), contributing to record shipments for the nine months to 31 March 2023 to 143.10 mt. The company’s average revenue of $109/dry metric tonne (dmt), realizing 87% of the average Platts 62% CFR Index for the quarter. Its cash balance was $4 billion as of March 31, 2023.
Over the past three years, FSUGY’s revenue grew at a 9.8% CAGR. The company’s EBITDA and EPS increased at CAGRs of 5.9% and 5.1% over the same time frame, respectively. Also, its total assets grew at a CAGR of 9.5%.
Shares of FSUGY have gained 10.7% over the past month and 31.1% over the past year to close the last trading session at $29.88.
FSUGY’s solid fundamentals and outlook are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
FSUGY has a B grade for Value, Stability, and Quality. Within the Miners - Diversified industry, it is ranked first among 43 stocks.
Click here to see FSUGY’s ratings for Growth, Momentum, and Sentiment.
Stock to Watch:
South32 Limited (SOUHY)
Based in Perth, Australia, SOUHY is a diversified metals and mining company that operates in Australia, Southern Africa, North America, and South America. The company has a portfolio of assets producing bauxite, alumina, silver, lead, zinc, aluminum, copper, nickel, metallurgical coal, manganese, ferronickel, and other base metals.
On May 18, SOUHY’s Hermosa project got confirmed by the US Federal Permitting Improvement Steering Council (FPISC), an independent federal agency, as the first mining project added to the FAST-41 process.
The Hermosa project, located in Southern Arizona, is the only advanced mine development project in the US that could produce two federally designated critical minerals, manganese and zinc, vital minerals for powering the world’s clean energy future. This development should benefit the company significantly.
SOUHY’s forward EV/EBIT and EV/Sales of 5.75x and 1.38x are 50.3% and 11.4% lower than the industry averages of 11.57x and 1.56x, respectively. However, the stock’s 1.34x forward Price/Sales is 17.7% higher than the industry average of 1.14x.
For the nine months ended March 31, 2023, SOUHY’s aluminum production grew by 15% year-to-date to 847,000 tonnes. Its group copper equivalent production increased by 7% year-to-date, driven by recent investments that delivered strong growth in copper and low-carbon aluminum. Also, its Australia manganese achieved record production by rising by 6% year-to-date.
For the half year that ended December 31, 2022, SOUHY’s profit after tax decreased 33.6% year-over-year to $685 million. Its underlying earnings were $560 million, down 44.2% year-over-year. Also, the company’s underlying EBITDA came in at $1.36 billion, a decline of 27.1% year-over-year.
Over the past three years, SOUHY’s revenue and EBITDA grew at CAGRs of 9.8% and 37.8%, respectively. Also, the company’s EBIT increased at a 76% CAGR over the same time frame.
Analysts expect SOUHY’s revenue to decrease 7.6% year-over-year to $8.56 billion for the fiscal year that ended June 2023. The company’s revenue for the fiscal year 2024 is expected to decline year-over-year to $8.55 billion.
Shares of SOUHY have gained 7.2% over the past nine months to close the last trading session at $12.77. However, the stock has slumped 13.3% over the past three months.
SOUHY’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.
SOUHY has a B grade for Stability. It has a C grade for Value, Sentiment, and Quality. The stock is ranked #9 out of 43 stocks in the same industry.
To access additional ratings for SOUHY’s Growth and Momentum, click here.
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GLNCY shares were unchanged in premarket trading Wednesday. Year-to-date, GLNCY has declined -9.93%, versus a 16.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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