Investing in mining stocks

From gold to gravel, there’s room for profit — but geopolitical shifts are a major risk.

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There’s no shortage of options for those who want to invest in mining companies. But Australian investors will need to pay close attention to the price history and location of the material being mined before they buy mining stocks, as shifting political tides have the potential to sideline operations.

What are mining stocks?

Mining stocks are stocks from companies that extract minerals and materials from the earth. Mined materials vary in composition and can be divided into the following major categories:

  • Energy materials. Bitumen, coal and uranium.
  • Fertilizers. Boron, rock phosphate, potash and sulfur.
  • Industrial metals. Aluminum, cobalt, copper, iron ore, lithium, nickel and zinc.
  • Industrial minerals. Asbestos, bentonite, graphite, gravel, gypsum, limestone, mica, potash, pumice, salt, sand, silica and talc.
  • Precious metals. Diamond, gold, iridium, mercury, osmium, palladium, platinum and silver.

There are two major categories of mining stocks: majors and juniors. Majors refer to well-established companies with international operations and a history of steady profits — they share the same status as blue-chip stocks in the general stock market.

Juniors are small mining companies with less working capital and shorter histories than their major counterparts — think of them as a type of growth stock specific to the mining industry.

Why invest in mining stocks?

Thanks to its long history, economic viability and global demand, the mining industry holds great potential for profit.

Many industries rely on mining efforts to produce the materials needed to manufacture their wares and services. Without cobalt, electric vehicle manufacturers would flounder. Without uranium, we wouldn’t have nuclear energy.

Mining is a time- and energy-intensive process. But mining companies continue to expand their reach thanks to the international demand for what they source and produce. This type of global reliance on mined materials makes this industry among the more powerful and viable investment categories.

Major mining companies offer the opportunity for steady returns and dividends. Junior mining companies hold the potential for rapid growth. Australian investors should research the mining company of interest to them and what materials it yields to determine potential benefits specific to the product.

Risks of investing in mining stocks

The mining industry isn’t immune to risk and faces several unique challenges — chief among them: economic and geopolitical shifts.

The mining industry tends to do well in an up market because the profitability of this sector is largely tied to the health of the global economy. When demand for mined metals and materials is high, mining companies are well-positioned for strong and consistent cash flow. But when demand is low in response to a down market, mining companies may suffer.

Mining companies are also vulnerable to political regulations depending on where their mines are located. Many mining stocks on the market are international companies with mine locations across the globe. A mine's location can have a big impact on a mining company’s profitability, as the political environment of the country the mine is located in can impact mining processes and material prices.

Mining market projections

In 2019, the combined revenue of the top 40 mining companies worldwide amounted to $US 692 billion. But 2019 wasn't a good year for net profit margins — a figure that's been on the decline for the past decade. Net profits for the industry dropped from 35% in 2010 to 9% in 2019, according to Statista.

That said, employment and total mining gross output for the US have been steadily growing. In the year 2000, gross output sat at $US 218 billion and approximately 521,000 people were employed within the industry. By 2019, Statista reports that gross output for the US mining industry had more than doubled to $US 579 billion and employment had increased to 672,000.

Mining stocks

Mining stocks include both domestic and international companies that produce all sorts of minerals and precious metals. If you’re interested in a specific material or commodity, take some time to research the company, its history and its financials before you buy in.

What ETFs track the mining category?

Mining ETFs invest in companies that generate revenue from mining natural resources. The following ETFs track companies in the mining sector:

  • BetaShares Gold Bullion ETF (QAU)
  • Betashares Global Gold Miners ETF (MNRS)
  • Vaneck Vectors Gold Miners ETF (GDX)
  • Vaneck Vectors Australian Resources ETF (MVR)

Compare trading platforms

You’ll need a brokerage account to invest in mining stocks in Australia. Compare options by features and fees to find the account that best meets your needs.

Name Product Standard brokerage fee Inactivity fee Markets International
eToro Share Trading (US stocks)
US$0
US$10 per month if there’s been no login for 12 months
US shares, ETFs
Yes
Zero brokerage share trading on US stocks with trades as low as $50.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
Superhero share trading
$5
No
ASX shares, ETFs
No
Pay zero brokerage on all Australian ETFs.
Trade ASX stocks with a flat $5 commission fee and a low minimum investment of just $100.
ThinkMarkets Share Trading
$8
No
ASX shares, ETFs
No
Limited offer: Get 5 free ASX trades when you open a new account with ThinkMarkets before June 30, 2021 (T&Cs apply).
Buy and sell CHESS sponsored ASX shares with $0 brokerage on your first 5 trades. Only $8 flat fee brokerage thereafter, plus enjoy free live stock price data on an easy to use mobile app.
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
⭐ Finder Exclusive: Get 5 free stock trades and unlimited ETF trades until July 31, 2021 when you join Bell Direct.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
IG Share Trading
Finder Award
IG Share Trading
$8
$50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares
Yes
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
Saxo Capital Markets (Classic account)
$6.99
No
ASX shares, Global shares, Forex, CFDs, Margin trading, Options trading, ETFs
Yes
Acess 19,000+ stocks on 37 exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
CMC Markets Stockbroking
$11
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges.
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Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Bottom line

Major mining stocks represent a potential long-term investment with the opportunity for steady gains. Junior mining stocks may have more growth potential but are typically riskier investments. Before you purchase either, review your platform options to find the brokerage account in Australia that’s ideal for your investment goals.

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