The mining sector consists of organizations that are focused on finding, extracting and processing deposits of naturally occurring mineral substances. These substances are valuable and crucial to the global economy because they are needed to manufacture major products and infrastructure. This is why we are going to understand in depth the various benefits of investing in mines.
The mining industry is global but five of the largest mining companies have their headquarters in China, which is the world’s largest economy. Other big mining industries are based in the United Kingdom, Switzerland, Australia and Brazil. The mining industry can be one of the most volatile sectors to invest in, but this also comes with high reward. When the economy is expanding, a major part of it depends on the distribution of mined materials. This contributes to the many benefits of investing in mining stocks, but before we dive into the investment benefits of the mines, first let us quickly look into what a mine is.
What is a Mine?
A mine is a pit or excavation in the earth from which mineral substances are taken. An ore deposit. A rich source of supply (Merriam-Webster Dictionary). When you think of mine, what should come to mind is something hidden or beneath the surface, hence mining is extracting various useful materials from the earth. This materials includes
- Liquid minerals- crude petroleum
- Precious metals- gold, silver, palladium, platinum
- Energy materials- coal, uranium, bitumen
- Industrial metals- iron ore, copper, lithium, zinc, cobalt, aluminum
- Construction materials- limestone, crushed stone, sand
- Fertilizer- potash, phosphate, boron
- Gases- natural gas
Although investing in mining stock is capital-intensive, having a number of quality stocks to your portfolio will be the right move if you are comfortable with some volatility, and also if receiving dividends is equally important for you. As an investor, your attention should be driven towards mining stocks that can withstand future economic stocks as a result of the cyclical nature of the mining industry. You should focus on top mining companies that have proven their ability to generate profit regardless of upshot of inflation, based on the amount of debts companies often struggle with during economic downturns . The most profitable are companies with low production costs as they are least likely to heavily rely on debts to fund growth. Investopedia in September,2022 published a list of some of the biggest mining companies by 12-month trailing(TTM) revenue. See details below:
Biggest Mining Companies
Some of the biggest and popular mining companies are;
- GLENCORE PLC (GLNCY)
- BHP GROUP LIMITED
- RIO TINTO PLC
- JIANGXI COPPER CO
- VALE SA (VALE)
- ANGLO AMERICAN PLC (NGLOY)
- ALUMINUM CORPORATION OF CHINA LTD (ACH)
- YANZHOU COAL MINING CO. LTD (600188)
Benefits of Investing in the Mining Sector
A great percentage of all the products we use on a daily basis have elements that are gotten from mining. So the good news is, mining is here to stay. Now let me walk you through four benefits of investing in mines:
Well Established Industry
The mining industry is one of the MOST ESTABLISHED industries in the world, with industrial mining that originated over 10,000 years ago. This simply explains how the industry has developed patterns and trends that are well established. As a result, investors are able to get predictions of the potential profit of an orebody from juniors before they decide to live forward with investing.
Demand of Natural Resources
The mining industry provides NATURAL RESOURCES that humans can not live without. Natural resources serve as the backbone of every other possible industry that you can invest in on earth. Houses and even industries can not be built without steel. Health tech companies need these natural resources, the automobile industry is also producing electric vehicles that use battery metals as the need for a more sustainable future rises, and many others. All these other industries are built on natural resources and this makes demand to be on the high side as supply becomes scarce.
Offers Different Levels of Risk
There are different levels of risk that suit your plan. As an investor, you can choose to split your investment between the junior mining companies and the major mining companies. The major difference between these two is the market capitalization. The juniors tend to vary in risk and have a market capitalization sub $1billion, while the major companies tend to have their market capitalization over $1billion while offering a more stable and steady investment with smaller returns.
Simplified Investment Process
Investment process is SIMPLE to understand. All mining companies generally follow the same process through this life cycle. If you carry out your own research, though it may seem complicated at first, you will realize it is easy to understand and invest in the business.
Decreased Supply equals Increased Profit
The increase in the world’s population is causing an exponential increase in the demand for natural resources. As economies grow, the consumption of natural resources per capita also increases. A reduction in supply will automatically lead to more people demanding for the product. An increased demand will then lead to increased profit.