Our Pick Of The Best Mining Stocks And Funds

Anglo American (AAL)

Anglo American is a London-listed, multi-national mining business with operations around the world. Its share price closed at £17.68 on 13 December 2023 and its market capitalisation, calculated by multiplying the number of shares in circulation by the share price, stood at £27.3 billion.

Andrew Marsh at Artemis Income fund says: “Anglo American is the world’s largest producer of platinum. It also mines copper, diamonds, nickel and iron ore.

“The share price has fallen over 30% this year as a result of commodity price pressure and the slump in China, which is a big consumer of mining and metals. Who knows if that will reverse in 2024? But we do know the world needs to consume less fossil fuel. We need to electrify and that’s going to require more copper and other transition metals, growth in demand that’s core to Anglo American’s business.

“Only last year Anglo American began to produce copper from its new copper mine in Qeullaveco in Peru, which should deliver 300,000 tonnes of copper a year. It’s a modern operation and extremely efficient.

“Though I’m not saying Anglo American will get a premium for its output, we know that with new carbon footprint reporting coming in, companies are going to have to track carbon emissions right back to the production of the essential raw materials they use. This should work as an advantage to modern mining companies like Anglo American that are working hard to reduce their carbon emissions.

“We look for companies with sustainable and growing free cashflows that should result in a sustainable and growing dividend over the medium to long term. Anglo American fits that bill.”

Jamie Maddock at Quilter Cheviot, says: “The company is globally diversified and has attractive long-term output growth prospects underpinned by minerals and metals that are set to be key beneficiaries of the energy transition.

“After a challenging year featuring operational mis-steps and exceptional commodity price weakness for, in particular, platinum group metals, the shares have meaningfully underperformed leading to a low valuation and, against which, expectations that have been reset firmly lower.”

Cameco (CCO)

Cameco is a Canadian company that has been publicly-traded since 1991. Its shares can be bought and sold via both the Toronto Stock Exchange (ticker, CCO) and the New York Stock Exchange (CCJ).

The company is one of the largest global providers of uranium fuel. Regarded as a ‘pure-play’ investment in the growing demand for nuclear energy, its competitive position is based on its controlling ownership of the world’s largest high-grade reserves and low-cost operations.

Campbell Parry at Investec Wealth & Investment (UK), says: Cameco is a uranium mining company that also partly extends to integrated ‘downstream’ activities including uranium conversion and enrichment and fuel rod assembly. The business spans high-quality, low-cost mining operations, with plenty of options for expansion.

“The company will soon also be involved in power generation with the acquisition of a half share in Westinghouse Electric. Support for nuclear power is gaining traction with governments around the world as a means of achieving emissions reduction pledges, and the public is catching on, too.

“There are a significant number of new-build nuclear programs around the world, while some countries are switching old reactors back on again. Nuclear utilities are inadequately covered for raw uranium material supplies post-2025 and will soon come back to the market to sign supply agreements for more product with longer tenures.”

Glencore (GLEN)

London-listed Glencore is one of the world’s largest global diversified natural resources companies and a major producer and marketer of more than 60 commodities.

With a market cap of around £55 billion (12 December 2023), the company has around 140,000 employees and contractors and a footprint in more than 35 countries. Glencore’s customers are industrial consumers including those in the automotive, steel, power generation, battery manufacturing and oil sectors.

The company also provides financing, logistics and other services to producers and consumers of commodities.

Campbell Parry at Investec Wealth & Investment (UK), describes Glencore as “a global diversified miner with a unique business model and a great way to simultaneously play de-carbonisation and energy security”.

“Ultimately, Glencore will own one of the largest coal businesses in the world, as well as one of the most significant ‘green’ metals operations. Its trading operations are best in class and the company offers investors a certain degree of defensiveness in a world where difficult geo-politics has caused traditional supply chains to be disrupted.”

Blackrock World Mining Trust

The trust’s objective is to provide a diversified investment in mining and metal assets worldwide, that is actively managed with the objective of maximising total returns.

The trust’s main aim is to invest in quoted securities, but this can extend to investing in royalties derived from the production of metals and minerals as well as physical metals. Up to 10% of gross assets may be held in physical metals and up to 20% in unquoted investments.

Total assets in the trust at the end of October 2023 stood at £1.23 billion. The ongoing charge figure for the fund is 0.95%.

Nick Vaill at Investec Wealth & Investment (UK), says: “Launched in 1993, the fund has a long-term track record. Generally speaking, the team tends to prefer companies with quality balance sheets, good cost positions and strong management. At the end of October 2023, the top five holdings were BHP, Glencore, Vale, Rio Tinto, and Freeport-McMoRan which accounted overall for about a third of the trust’s holdings.

“Would-be investors should be aware that there is both a unit trust and investment trust version of this fund, with the latter’s share price potentially trading at a discount or premium to the trust’s net asset value.”

Nick Wood at Quilter Cheviot, says: “The trust has been a long-term winner in the space and is some way ahead of its index over the long-term.

“The team’s focus tends to be on cash-generative businesses which have long-life, low-cost assets in sectors that are supply-constrained. As a result, there is less emphasis on pure play exploration companies or developers.

“The team also invests with a total return mindset, with dividends playing a significant role in the total return. At present the trust has an attractive net yield of over 7%.”

iShares Gold Producers Exchange-Traded Fund

iShares Gold Producers is an exchange-traded fund (ETF) managed by BlackRock. Its investment objective is to track the performance of an index made up of companies related to businesses involved in the exploration and production of gold. At 13 December 2023, the fund’s net assets stood at £1.2 billion.

Nick Vaill at Investec Wealth & Investment (UK), says: “This passively managed fund has been running for over a decade and invests in gold-related mining companies across the world. With a total expense ratio of 0.55% per annum, it provides efficient exposure to some of the world’s leading gold-related businesses.

“At 13 December 2023, the fund’s top five holdings including percentage allocations were: Newmont (14%), Agnico Eagle Mines (11%), Barrick Gold Corp (10%), Wheaton Precious Metals Corp (8.8%) and Franco Nevada Corp (7.4%).

“More than half of the companies that are held are listed in Canada, with the allocations all physically held by the fund, an important consideration for ETFs.”

Mining is a huge industrial sector. According to PwC’s 2023 report Mine: The era of reinvention, published in the summer, the market capitalisation of the top 40 miners tripled from around £320 billion in 2003 to £960 billion in 2022.

PwC said: “Given ongoing geo-political uncertainty, the rapid shift to clean-energy technologies and the importance of both of these issues to national security and economic stability, governments around the world have taken swift action over the last 12 months to secure critical mineral supply and, in doing so, changed the playing field significantly.

“This includes swift action to form alliances, craft policies and laws, and fund initiatives that will help stabilise the supply of critical minerals.”

Depending on the raw materials concerned, mining companies can be grouped together into several categories:

1. Building materials: usually rocks that have a use in the construction industry. Includes aggregates such as rock, granite, limestone and sand (silicon oxide).
2. Minerals: solid chemical compounds found pure or close to pure in nature either with a decorative attraction or that can be used in chemical processes. Examples include diamonds, potash, talc, gypsum, calcite, quartz and sodium chloride (common rock salt).
3. Energy materials: Materials that can be extracted from the ground and subsequently used as a form of fuel, for example, coal. The mining industry also extends to uranium (used for nuclear power) and bitumen which can be converted into crude oil.
4. Base metals: Cheap and widely available metals that are used for industrial purposes, including as building materials and electrical components. These include iron ore; nickel; lead; zinc; copper; aluminium; molybdenum and cobalt.
5. Precious metals: Rarer, naturally occurring metals that possess a high economic value that are used for jewellery and as a form of currency. For example, gold, silver, platinum and palladium.

A mining company is a business that extracts and produces minerals and other raw materials from mines which can be underground or open-cast. Mining companies are often split into two distinct groups known as ‘majors’ and ‘juniors’.

Majors tend to be long-standing, well-capitalised companies often with an international presence that enjoy slow and steady cashflow on the back of proven reserves. Juniors, in contrast, usually have short track records, sit on little in the way of capital, but harbour high hopes of future success having unearthed or who hope to unearth a successful natural resource deposit or field.

An exploration company is one that searches for mineral deposits and resources that are yet to be discovered.

Exploration companies do not typically extract or process the minerals concerned. Instead, their aim is to unearth and develop new mineral resources.

Despite opposition in some quarters, especially from environmental pressure groups, many investors still regard mining companies as playing an essential role in the global economy. They do this by extracting valuable resources from the earth that are used to power a wide range of industrial sectors from technology and transport to construction and satellites and space exploration.

Investing in mining companies can also help investors profit when global demand for raw materials is on the up. At the same time, certain mining stocks can also be a popular investment when economic conditions are on the wane.

For example, as has been seen in recent months with geo-political tensions in the Middle East and the war in Ukraine far from resolved, the gold price tends to rise when the global economy suffers on the back of bad news. In this scenario, gold mining shares can move higher as investors buy into the precious metal as a safe haven.

Mining is one of the most established industries in the world, dating back thousands of years. In the intervening time frame, geological knowledge has developed massively, while the ability to track down raw materials has improved significantly.

All of which means the sector has developed well-established trends and patterns that can be used to predict likely outcomes, not only for companies literally at the coalface of the mining sector, but for investors as well.

Mining is one of the earliest known processes known to humankind, but that does not mean the sector is without its risks. One of the biggest risks is the volatility of commodity prices which can therefore have a significant knock-on in terms of the viability and profitability of mining companies themselves.

For example, if the price of a commodity such as silver were to fall noticeably, this is likely to have an adverse effect on the share price of a mining company that is reliant on that particular metal.

Mining is also a costly business to undertake with many businesses operating in this sphere relying on high levels of debt to function. Mining is a capital-intensive industry and many organisations borrow large sums of money to underpin their operations. In times of high and/or sustained borrowing costs, this can have a disastrous impact on the performance of highly-indebted companies.

There are other risks as well. For example, given the nature of their work, mining companies can be susceptible both to accidents and environmental disasters. Mining can also have a detrimental impact on the environment and some companies will find themselves shunned by so-called environmental, social and governance or ESG investors on these grounds alone.

Risks of geo-political instability are another potential trap for mining companies to fall into, especially where businesses are operating in areas of political upheaval or in regions at threat from war. Mining companies also tend to find themselves subject to significant regulatory oversight. Changes to rules imposed by, say, a change of government can end up having a negative impact on the profitability of a company or even its licence to carry on trading in a country.

One of the most popular ways to buy mining company shares is via an online investing platform. Shares can be bought using a general trading account, or via a tax-efficient savings wrapper such as an individual savings account, or ISA.

We’ve written extensively about trading platforms and investment apps elsewhere, paying special attention to the fees that providers charge (as these can vary significantly from one service to another). To compare fees, along with other key items of information, take a look at our pick of the best trading platforms and best investment trading apps.

Most investing platforms offer the option to buy non-UK shares, including those suggested by our experts above. Note that investors looking to buy overseas stocks and shares are generally charged a foreign exchange fee of around 0.5% to 1% of the value of their purchase, along with a higher trading fee on international shares.

It’s also worth bearing in mind that holding overseas shares carries foreign exchange risk. For example, if the pound strengthens against the euro, then euro-denominated shares will be worth less than their sterling equivalent.

If the thought of researching and buying directly into mining companies sounds too time-consuming, complicated, or risky, or if the aim is to build up a more diversified portfolio of holdings, then another option is to consider buying investment funds.

There are thousands of investment funds to choose from, each offering a ready-made portfolio of assets including, shares, bonds, and commodities. Funds pool money from the contributions of potentially hundreds of thousands of investors and are split into two main types:

1. Actively-managed funds: which aim to beat a performance benchmark such as the FTSE 100 stock index, by deliberately choosing a basket of stocks to meet this target.
2. Passively-managed funds: also known as index or tracker funds. These are usually a lower-cost option compared with active funds that use computer power to copy the performance of a particular investing benchmark or stock index.

The section above highlights a pair of specialist funds that fit the mining brief as suggested by our investment experts.

By their nature, mining companies will not form part of every actively-managed fund as their inclusion or omission will be down to the remit of each fund.

Mining companies large enough to be a component of a particular stock index, such as the FTSE 100, will always form part of a tracker fund designed to replicate the performance of the index in question. Index funds invest in companies in proportion to their respective sizes within the index in question.