2 UK Mining Stocks to Watch
Although the London Stock Exchange (LSE) finds itself dwarfed by Wall Street these days, there are a few industries in which it more than holds its own, one of which is mining.
The LSE is home to some of the largest mining stocks in the world. But which UK mining stocks should investors watch in 2024? In this article, we examine two UK mining shares and their prospects in 2024.
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Investing in UK Mining Shares
One of the most important elements of risk management is portfolio diversification, which entails splitting your capital amongst a variety of investments in order to avoid overexposure to any one industry.
Mining stocks can be a valuable part of a well-diversified portfolio. When the economy is expanding, demand for raw materials tends to increase, which naturally benefits companies which mine these materials.
Furthermore, mining stocks are considered by many to act as a hedge against inflation, something which may be particularly useful in the current climate. The logic behind this is that the prices of commodities tend to increase alongside inflation, which can result in increased earnings for mining companies.
Top UK Mining Stocks to Watch
The FTSE 100 is home to some of the largest mining companies in the world, meaning that those looking to invest in mining stocks have plenty of options to choose from. But which are the top UK mining stocks to watch in 2024? In the following sections we will take a look.
Glencore
Glencore is a multinational mining company which produces and sells a range of raw materials such as copper, cobalt, zinc and nickel. As well as mining materials itself, the company is also a major marketer of commodities, sourcing them from a vast array of global suppliers and selling them to customers around the world.
Focussing on the mining, Glencore is one of the world’s leading producers of copper. In 2021, Glencore produced 3.1 million tonnes of copper, which represented almost 15% of total copper produced worldwide that year. In terms of cobalt, Glencore’s production of 31,300 tonnes represented 18% of total global production in 2021. Its proportion of total global nickel production was less significant, its 102,300 tonnes only accounting for 3% of global production in 2021.
Why are we highlighting these specific metals? All three are key components in the manufacturing of electric vehicle batteries and, consequently, could see a growth in demand in the coming years as the world transitions to net zero. Therefore, Glencore, as a leading global supplier of two of these metals, could be poised to benefit from an increased demand.
In what was a difficult year for the stock market, Glencore shares performed well in 2022, rising 48% by 7 December 2022, making them one of the FTSE 100’s top performers. Furthermore, this UK mining stock pays a handsome dividend which, despite the surge in share price, still yields an attractive 4% at the time of writing.
Nevertheless, it should be noted that much of Glencore’s success in 2022 is attributable to inflated commodity prices, which in turn is partly attributable to the war in Ukraine. A resolution to this European crisis and a weakening global economy could put downward pressure on prices, which would likely hit Glencore’s fundamentals and, consequently, its share price.
Rio Tinto
Anglo-Australian multinational Rio Tinto is the second largest mining company in the world by market capitalisation.
Rio Tinto is a diversified business, which produces a number of raw materials; however, its bread and butter is iron ore, of which it is a leading global supplier. In 2021, Rio Tinto accounted for 12% of the total global production of iron ore, which generated roughly 63% of the company’s revenue that year.
Therefore, despite being a well-diversified company, its earnings are vulnerable to changes in the price of iron ore. Iron ore is a key component in the manufacturing of steel which, in turn, is heavily used in construction.
Demand for steel, and consequently iron ore, is correlated to economic growth. When the global economy is growing, demand for iron ore also grows, with the opposite also being true.
However, it is worth pointing out that the company generates the majority of its revenue, more than 57% in 2021, from China. With Beijing starting to dial back its restrictive Covid-19 policies in response to social unrest, Chinese construction may grow in the future.
Conversely, Europe accounted for less than 7% of Rio Tinto’s revenue in 2021, meaning that Rio Tinto does not find itself heavily exposed to a potential European recession.
As of 7 December, Rio Tinto’s share price has risen more than 15% in 2022, despite iron ore prices struggling for much of the year, and its dividend yield sits at a mightily attractive 10% at the time of writing.
These metrics might sound good, but past performance should not be used as a barometer for future success. Moreover, despite the diversified nature of the business, an investment in Rio Tinto is largely an investment in iron ore and, given the geographical footprint of their sales, it’s also an investment in the Chinese economy. Therefore, it is important to understand the outlook of these two variables before investing in Rio Tinto.
Is Now the Right Time?
Although they can offer a hedge against inflation, mining stocks are cyclical, performing better when commodities are priced higher and vice versa.
Both of the UK mining stocks we have looked at are currently sitting around their all-time highs. Rio Tinto, in particular, has been following an upward trajectory and earning large profits for several years running.
This could mean the shares are near their cyclical high and are poised to move lower in the near future. However, it could also be the case that these UK mining stocks will keep moving higher.
When investing in cyclical stocks such as these, it is best to consider the outlook of the global economy, or the relevant parts of it, before investing any of your money. But also, keep in mind that timing the market is incredibly difficult to do successfully. If you are positive about the long-term success of a company, the best approach may be to invest a fixed amount over longer period of time to offset share price fluctuations.
How to Invest in UK Mining Stocks
With an Invest.MT5 account from Admirals, you can buy shares in both the UK mining stocks examined in this article, as well as over 4,500 different shares from around the world.
In order to start investing, follow these steps:
- Open an Invest.MT5 account and log in to the Dashboard
- Find your account details in the Dashboard and click ‘Invest’ to open the MetaTrader Web Trading Platform
- Search for the desired stock in the Market Watch and drag the symbol onto the chart in order to open a price chart
- Click ‘New Order’ at the top of the screen to bring up the order window. Here, you can enter the number of shares you wish to purchase before clicking ‘Buy’ to send your order to the market!
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