Mining stocks - How to invest in them

23 Min read

Different types of raw materials have always been attractive to many investors. In reality, these materials are the main building blocks of almost everything around us, and mining stocks are one of the most popular ways to invest in them. Investing in mining stocks may seem relatively easy, but it has its peculiarities.

In this article you will find out:

  • What are mining companies?
  • Types of mining stocks
  • Why invest in mining stocks?
  • The risks of investing in mining stocks
  • How much money should you spend investing in mining stocks?
  • How to choose the best mining stocks?
  • How to invest in mining stocks?
  • How to start trading mining stocks?

Let's not waste any more time. Let’s start!

Mining stocks - What are mining companies?

Mining companies are companies that explore, extract, process and sell precious metals, minerals, as well as raw materials such as coal, and in some cases, oil and natural gas. These raw materials are often used in a wide range of industrial products, capital goods and consumer products. Some companies in the mining sector also produce agricultural raw materials.

A significant part of the mining sector consists of large multinational companies that are supported by production from their mining operations. Various other industries such as equipment manufacturing, environmental testing and metallurgical analysis support the mining industry around the world. Some of the largest mining companies are based in China, the United Kingdom, Switzerland, Australia, Russia and Brazil.

Types of mining stocks

As far as the raw materials they operate are concerned, mining companies can be grouped into the following categories:

  • Base metals: These common and cheap metals are used for many industrial purposes. They are used as building materials and electrical components. The main base metals are iron ore, nickel, lead, zinc, copper, aluminum, molybdenum and cobalt.
  • Precious metals: These are rare, naturally occurring metals that have a high economic value. Therefore, we often use them for jewellery, and sometimes as a form of currency (for example, silver coins and gold bars). The main precious metals are gold, silver, platinum and palladium.
  • Energy materials: Several materials are extracted from the ground and burned to create energy. The most common is coal. The mining industry also extracts uranium (used for nuclear power) and bitumen (a tar-like substance found mainly in Canada, which is processed into crude oil).
  • Minerals: These are solid chemical compounds found in nature in pure form. Examples of extracted minerals include potash, talc, gypsum, calcite, quartz, diamonds and salt.
  • Building materials: These are rocks that have industrial application in the construction industry. The usual building aggregates are limestone, rock, sand and granite.

We can make another fundamental division of the different types of mining companies according to their market capitalization:

  • Large mining companies. These are well-capitalized companies with decades of history, global operations and a slow but steady cash flow. Mining stocks in these companies are often not very volatile.
  • Small mining companies. They tend to have little capital, a short history and high hopes for huge returns in the future. Mining stocks in these companies, in most cases, show more volatility.

Each investor will make their choice to which mining stocks to invest in. However, it’s recommended that all capital earmarked for investment in this industry not be directed to a single company or only one type of these companies, to diversify the portfolio.

Why invest in mining stocks?

Due to the importance of metals and minerals for the future of the world economy and demand, respectively, the prices of most of these raw materials increase when the economy is booming and decrease when economic activity slows.

Base metals are essential for building the infrastructure of the world economy.

  • Iron ore is the most mined metal, as it is a critical component for the production of steel, which companies must use in bridges, buildings and pipelines.
  • Aluminum is the second most mined metal due to its importance for the aerospace and automotive sectors
  • Copper completes the top three because of its ability to conduct electricity

Thus, buying mining stocks can become an investment in the growth of the world economy. Given the importance of base metals, it’s not surprising to see that most of the world's largest mining companies focus on at least one of these raw materials.

Apart from the growing global economy, one of the biggest drivers of growth in mining stocks is renewable energy. This is because the industry uses a lot of metals and raw materials.

For example:

  • The production of a wind turbine with a capacity of 3 megawatts (MW) requires 335 tons of steel, 4.7 tons of copper, 3 tons of aluminum and more than 317 kilograms of rare earth minerals, as well as other metals and materials such as aggregates.
  • For a conventional power plant, about 1 ton of copper is used to produce 1 MW of continuous power.

As renewable energy sources require more metals, the growth of the sector will stimulate accelerated demand for these raw materials.

The production of electric vehicles also uses a significant amount of materials from the mining sector. For example, while gas-powered cars require between 8 and 22 kilograms of copper, battery-powered electric cars need 83 kilograms of this metal.

Demand for lithium (widely used in electric car batteries) is on the verge of exceeding the current rate of production of mining companies by 2022. By 2050, analysts predict that consumption may be up to 170% above currently known lithium reserves if it is not assumed that there will be changes in technology. As such, lithium mining stocks attract attention from investors.

When it comes to investing in different types of raw materials, we must not forget the recent economic stimuli from central banks and governments, as well as zero and negative interest rates. All this, at some point, will very likely lead to increased inflationary pressures and lower values ​​of currencies, which will almost certainly have a positive impact on the price of most commodities.

If the reasons listed above have not yet convinced you to focus on investing in mining stocks, then let's see what additional benefits can come from such investments and summarize them:

  • In a time of crisis, like the one with Covid-19, it may be a good time to invest in the future growth of the global economy
  • By investing in mining companies you can get exposure to fast-growing industries, such as renewable energy and electric vehicles
  • Many precious metals are an exceptional carrier of value and are one of the best means of protection against inflation. Gold mining stocks and silver mining stocks are popular for this reason
  • Investing in mining stocks offers you opportunities for capital gains
  • By investing in mining stocks you get opportunities for passive dividend yield
  • You have the opportunity to diversify your portfolio in different types of mining stocks and other economic sectors
  • You get exposure to a highly liquid market like the stock market because mining stocks are widely traded

Of course, every investor can find many other reasons to invest in the best gold mining stocks, coal mining stocks, silver mining stocks, cobalt mining stocks and any other mining stock. Here, I’ve just listed some of the most common ones.

You can get experience trading the best stocks without risking your funds, with a demo account from Admiral Markets. Get your free demo account now by clicking on the following banner:

The risks of investing in mining stocks

Like any investment, buying mining stocks has its risks. Here, I list the main ones:

  • Slowdown in the world economy
  • High volatility in the prices of some raw materials
  • Political instability and revocation/issuance of work permits in different countries
  • Decline in demand for some raw materials due to their replacement by others (coal seems to be the most vulnerable)
  • New environmental regulations

The risks involved in investing in gold mining stocks and silver mining stocks will differ from those involved with investing in base metals, such as lithium mining stocks. Of course, the right strategy for choosing mining stocks, along with strong risk and money management, can reduce these risks and actively manage them.

How much money should you spend investing in mining stocks?

You already understand what mining companies are and why you should invest in mining stocks. Now is the time to look at another key issue. How much money to invest in mining stocks?

The answer to this question depends mainly on three personal factors:

  • Personal opportunities
  • Personal financial goals
  • Personal tolerance for risk

Personal opportunities can be very individual for different investors and therefore it’s not possible to determine an exact amount for everyone to start with.

You can look at the investment horizon or the time for which funds can be set aside without needing them. This will depend on whether you focus on short-term investments or long-term ones. A cumulative investment (a certain amount each month, for example) can make a seemingly small return look serious when it comes to longer periods of time.

At the same time, start identifying your financial goals. What will you need in the future? You may want to buy a house or a car, finance your child's education, plan vacations abroad, start or develop a business or a new venture, or just have enough money when you retire.

The answers to these questions will give you an idea of ​​your financial goals.

The next aspect you need to consider is your risk tolerance or your ability to take risks. This depends on factors such as current income, savings, expenses, financial obligations (such as paying off a mortgage) and adequate financial coverage for your life and health. And last but not least, from your own temperament.

Both extended deadlines and higher rates of return could give you similar results. This makes different investments interesting and suitable for different purposes.

How to choose the best mining stocks?

We have already mentioned that the mining sector is crucial to our modern economy and it seems this will continue to be the case in the coming years. This growth must allow mining companies to derive great value for their investors, as long as they work wisely, focusing on the right stocks, while maintaining a well-diversified portfolio.

Investors interested in mining stocks need to learn a few industry-specific financial metrics that companies use to measure their progress before deciding when to buy mining stocks and which mining shares to buy. Below you can find 5 of them you need to know:

  • Total maintenance costs (AISC): Gold companies use this indicator to show how much it costs to produce an ounce of gold. It measures all mine maintenance costs (such as mine purchase costs, royalties, production taxes and refining costs), as well as corporate costs such as general and administrative costs and exploration costs. This indicator shows investors how much it costs the company to produce an ounce of gold.
  • By-product credits: Instead of bearing the cost of processing these raw metals into finished products, miners will sell them to others for further processing and use the payments to offset the extraction costs of their main line of work. For example, copper deposits often contain small amounts of zinc, silver, molybdenum and gold, which miners will sell to offset the cost of producing finished copper.
  • Cash costs: Mining companies will also report their total cash costs, which are the actual costs of producing metals, such as copper or gold. This indicator differs from AISC or costs minus by-product credits, as it only takes into account costs related to mines.
  • EBITDA: This acronym means earnings before interest, taxes, depreciation and amortization. This is an indicator that companies use to give investors a better idea of ​​their main profits. They use it because they often record large depreciation costs as they deplete the mine's reserves, which reduces their reported net income.
  • Ore classes: Metal deposits usually contain more rocks than precious metal. For example, a copper deposit often contains only between 0.5% and 1% of this metal. Miners use ore grades to measure how much metal is in a recent discovery or section they are currently mining. Mining companies often report fluctuations in production numbers from quarter to quarter due to differences in ore varieties.

These are the measurements to look for when investing in mining stocks. Let’s take a look at a few companies that may enter the rankings for the best gold mining stocks and mining stocks, in general.

This list of 5 mining stocks includes some of the largest companies in the sector, including one of the most prominent gold stocks in the sector:

BHP Group

BHP Group was founded in 1851 and is an Australian-based international resource company. It explores and mines minerals, including coal, iron ore, gold, titanium, ferroalloys, nickel and copper, and also offers exploration, production and refining of oil. The company serves customers around the world.

Currently (January 2021), BHP is the world's largest mining company by market capitalization.

Below you can find a chart of the BHP share price, which is traded on the London Stock Exchange:

Source: Admiral Markets MetaTrader 5, #BLT, Weekly chart with data range February 17, 2013, to December 4, 2020. Accessed on December 4, 2020, at 6:26 p.m. Please note that past performance does not guarantee future results.

Rio Tinto

Rio Tinto was founded in 1873, is based in the UK and is a multinational metal mining and mining company. It explores and mines for aluminum, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide raw materials, diamonds, talc and zircon. Rio Tinto is another option for those interested in gold stocks. The company serves customers in various industries around the world.

In the following image you’ll find a chart of the Rio Tinto share price, traded on the London Stock Exchange:

Source: Admiral Markets MetaTrader 5, #RIO, Weekly chart with data range February 17, 2013, to December 4, 2020. Accessed on December 4, 2020, at 6:26 p.m. Please note that past performance does not guarantee future results.

Glencore PLC

Glencore was founded in 1974, a Swiss-based multinational company, for trading and extraction of raw materials. It produces metal, mineral, energy and agricultural raw materials. The company serves the automotive, steel, energy, battery and oil sectors worldwide.

Below you can also find a chart of the Glencore share price, traded on the London Stock Exchange:

Source: Admiral Markets MetaTrader 5, #GLEN, Weekly chart with data range February 17, 2013, to December 4, 2020. Accessed on December 4, 2020, at 6:26 p.m. Please note that past performance does not guarantee future results.


Vale is a Brazil-based multinational mining company founded in 1942. It produces iron ore, manganese, iron alloys, gold, nickel, copper, bauxite, alumina, aluminum, potash and coal. The company also owns and operates railway and sea terminals. For those interested in the best gold stocks, Vale is one to consider. Vale operates in approximately 30 different countries.

Below you can find a chart of Vale's share price:

Source: Admiral Markets MetaTrader 5, #VALE, Weekly chart with data range February 17, 2013, to December 4, 2020. Accessed on December 4, 2020, at 6:26 p.m. Please note that past performance does not guarantee future results.

Barrick Gold

Barrick Gold Corporation is engaged in the exploration, development of mines, production and sale of gold and copper. The company was founded in 1983 with headquarters in Toronto, Canada and owns gold mines located in Argentina, Canada, Côte d'Ivoire, the Democratic Republic of the Congo, the Dominican Republic, Mali, Papua New Guinea, Tanzania and the United States. Barrick Gold is one of the most prominent gold stocks in this sector. 

In the following image you can find a chart of the gold stock price from the second largest gold producer in the world:

Source: Admiral Markets MetaTrader 5, #ABX, Weekly chart with data range February 17, 2013, to December 4, 2020. Accessed on December 4, 2020, at 6:26 p.m. Please note that past performance does not guarantee future results.

Tips for investing in mining stocks

Now it's time to note a few tips for investing and trading mining stocks, which are good to keep in mind:

  • Focus on companies whose main business is in politically stable regions
  • Take into account the dividend yield
  • Target companies with long-term reserves
  • Find companies that are diversified geographically
  • Avoid shares of mining companies that are trading at unreasonably high values

Before buying mining stocks, you should definitely take into account what’s been written in this part of this article and do the relevant research. The best way to minimize risks is through education on the risks of involved with precious metals like gold mining stocks and silver stocks. Then by comparing these to the risks that base metal stocks entail. 

Certainly, mining stocks have a place in any investor portfolio, but they must be carefully selected. 

You can start trading the best mining stocks with the number one platform in the world for trading in multiple assets - MetaTrader 5, provided by Admiral Markets. You can download MetaTrader 5 today, completely free of charge, by clicking on the following banner:

How to invest in mining stocks?

Investors have several opportunities for investing in mining stocks, each of which has its advantages and disadvantages.

Each investor must choose the right tools for themself, taking into account their capabilities, personal financial goals and risk tolerance.

Here are the three main opportunities for investing in mining stocks:

  • Contracts for Difference (CFDs) on mining stocks
  • Real shares of mining companies
  • Exchange Traded Funds (ETFs) investing in companies in the mining sector

Let's give a little more detail about each of them.

CFDs on mining stocks

A Contract for Difference (CFD) is a contract concluded between a trader and a broker to exchange the difference in the price of an asset. This contract is active until it is closed by the trader, and payments under it are through a broker, instead of the actual delivery of the traded asset.

In practice, contracts for difference provide investors with almost all the advantages of real investments in financial instruments, but without actually owning them.

Let's first note the advantages of trading contracts for difference:

  • Short sales. One of the main advantages of today's CFD trading lies in the possibility of short positions. In this way, you can potentially benefit from both rising and falling markets
  • Use of leverage. CFDs allow you to manage a larger amount than you have in your trading account. This happens through the use of leverage
  • Opportunity for transactions throughout the day. CFDs allow traders to take advantage of short-term price movements in the stock, index or commodity markets
  • Easy access to global markets. Easy access to many financial instruments, such as stocks, bonds, currencies, commodities, cryptocurrencies, etc. through an intermediary of your choice
  • In CFD trading with Admiral Markets, there are often no fees or commissions for opening and closing positions
  • Numerous trading styles are available (at least for some brokers, such as Admiral Markets)

Like any investment instrument, CFDs have their drawbacks:

  • There is no possession of the underlying asset, with which there are no property rights in case of bankruptcy of the company
  • CFDs may be a less regulated product
  • The leverage effect can be a double-edged sword. This means that in addition to increasing potential profits, the financial lever also increases potential losses
  • Swap fees to hold the position at night

Trade CFDs on the world's most popular mining stocks now with no commission. Click on the banner below to get started today:

Real mining stocks

Advantages of investing and trading in real mining stocks:

  • Real possession of the base with all associated property rights
  • Less risk due to lack of leverage
  • No swap fees to keep the position open at night
  • More stable regulation

At the same time, the disadvantages of investing and trading in real mining stocks, compared to trading CFDs on shares, are:

  • Lack of opportunity to open short positions
  • Lack of opportunity to use leverage
  • Possibility of fees and commissions on purchases and sales
  • Lack of opportunities to trade in many different markets

Whether you are going to trade CFDs on mining stocks or trade real mining stocks, you need to go to a regulated broker like Admiral Markets.

Investing in ETFs in mining stocks

An Exchange Traded Fund (ETF) is a basket of securities that you can buy and sell on the relevant stock exchanges through a financial intermediary (broker).

These funds can be invested in many different asset classes, one of which is mining stocks.

The benefits of investing in ETFs in mining stocks:

  • Lower costs, because you can buy a basket of shares instead of just one
  • Automatic portfolio diversification
  • Tax efficiency (for example, actively managed mutual funds often buy and sell assets, which generate taxable capital gains, which isn’t the case with ETFs)

Disadvantages include:

  • In some cases, ETFs may have lower liquidity than equities
  • There may be some discrepancies with the underlying asset that follows the fund

There’s no right or wrong tool to use when investing in mining stocks. You just have to choose the most suitable one for your trading and investment style.

You can invest in gold mining stocks, silver mining stocks and all other raw material stocks as well as ETFs with a regulated broker such as Admiral Markets. You can click on this banner to start today:

How to start trading mining stocks

Once you know what mining companies are, the reasons for investing in mining stocks, how much money to spend and how to invest in these companies, it's time to move on to the more interesting practical part, namely to make your investment in mining stocks.

You can do this in just three steps:

  1. Open a trading account.
  2. Download your trading platform.
  3. Open a New Order window and make your first trade!

For more information on how to open a trading account with Admiral Markets, watch the following short video:

Let's give an example of how to buy/sell CFDs on mining stocks, using Barrick Gold.

How to buy mining stocks

  1. Log in to your account with Admiral Markets (MT4/MT5/WebTrader/Mobile app)
  2. Go to Market Condition
  3. Look for Barrick Gold shares (#ABX)
  4. Right-click on the shares and then select "Chart Window"
  5. Once the graphic appears, click on the "New Order" button (in the Toolbar below the menu)
  6. Select the number of lots in the Volume field, as well as the stop loss and take profit levels, if you want to place these
  7. Click on the blue "Buy on Market" button

When you buy (in a long position) in Barrick Gold shares, you expect them to rise so that you can make a potential profit from your trade.

How to sell mining stocks

  1. Log in to your account with Admiral Markets (MT4/MT5/WebTrader/Mobile app)
  2. Go to Market Condition
  3. Look for Barrick Gold shares (#ABX)
  4. Right-click on the shares and then select "Chart Window"
  5. Once the graphic appears, click on the "New Order" button (in the Toolbar below the menu)
  6. Select the number of lots in the Volume field, as well as the stop loss and take profit levels if you want to place these
  7. Click on the red "Market Sale" button

When you sell (in a short position) in Barrick Gold shares, you expect them to fall in price so that you can make a potential profit from your trade.

About Admiral Markets

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With Admiral Markets you can use the most innovative trading platforms such as MetaTrader 4 and MetaTrader 5, MetaTrader Supreme Edition, as well as the exclusive Premium Analytics portal for free.

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The data provided provides additional information on all analyzes, estimates, forecasts, forecasts, market reviews, weekly outlooks or other evaluations or similar information (hereinafter "Analysis") published on the Admiral Markets website. Before making any investment decisions, pay close attention to the following:

  1. This is a marketing communication. The content is posted for informational purposes only and should not be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and is not subject to any prohibition on pre-dissemination of investment research.
  2. Each investment decision is made by each client alone, while Admiral Markets UK Ltd (Admiral Markets) will not be liable for any loss or damage arising from such a decision, whether based on content or not.
  3. In order to protect the interests of our clients and the objectivity of the Analysis, Admiral Markets has established relevant internal procedures for the prevention and management of conflicts of interest.
  4. The analysis is prepared by independent analyst, Boris Petrov, a financial analyst (hereinafter "Author") based on personal estimates.
  5. While all reasonable efforts are made to ensure that all sources of content are reliable and that all information is presented, as much as possible, in an understandable, timely, accurate, and complete manner, Admiral Markets does not guarantee accuracy. or integrity of any information contained in the Analysis.
  6. Any past performance or modelling of the financial instruments indicated in the content should not be construed as an express or implied promise, guarantee, or implication of Admiral Markets for any future performance. The value of the financial instrument may rise and fall, and the preservation of the asset's value is not guaranteed.
  7. Leveraged products (including contracts for difference) are speculative in nature and may generate profit or loss. Before you start trading, make sure you fully understand the risks.
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