The mining sector has taken a beating but rallying commodity prices could reverse this
With slowing demand due to elevated interest rates, the mining sectors have been hit hard since 2022. Moreover, lithium carbonate, the rare earth mineral for making electric vehicles and smartphone batteries, also experienced price pressure. Though the mineral’s price fell more than 48% in a year, a recent uptick in demand raised prices by more than 16% from year-to-date. This increase could likely be due to a strengthening market in China.
Gold prices have surged as well, rising around 13% since the start of 2024. Given the plethora of mining stocks available and the price trend of certain commodities, there are bound to be opportunities in the market. Below are three 3 mining stocks with untapped potential that investors should start considering.
Rio Tinto (RIO)
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United Kingdom-based Rio Tinto (NYSE:RIO) is a diversified mining company among the largest in the world. In 2023, the mining firm, like many, struggled as its core commodities, aluminum and iron, dropped in price and demand. However, according to Koyfin, aluminum prices have picked up in the past week alongside a resurgence in Chinese manufacturing.
Moreover, despite a drop in profits, Rio Tinto remained committed to its shareholder dividend, providing $2.58 per share at a yield of around 6.45%. This, paired with the rise of many commodities, could be attractive to income-focused investors seeking hefty dividends from the firm.
Recent news that Norges Bank Investment Management, could sell its $2.7 billion share in RIO due to deforestation concerns has put pressure on the stock. However, should Norges Bank sell its stake, it is likely another fund or group of funds will eagerly fill in the gap. Despite the environmental concerns around mining, the business isn’t going away anytime soon. Thus, investors should consider the real opportunities a multibillion-dollar business like RIO has while it trades at this cheap multiple.
Lithium Americas (LAC)
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Lithium Americas (NYSE:LAC) is a lithium extraction company focused on the Thacker Pass in Nevada, the largest lithium deposit in the U.S. The Thacker project already has tremendous potential, with 16.1 million tons of battery-grade lithium carbonate equivalent (LCE) available for extraction.
With the Thacker Pass project receiving a $650 million investment from General Motors (NYSE:GM), the project’s role in supplying battery materials for electric vehicles is undeniable. Moreover, the project will likely generate $1.2 billion in annual EBITDA, justifying LAC’s current enterprise value of $900 million.
A couple weeks ago, to add to Lithium Americas’ nearly $200 million of liquidity, the U.S. Department of Energy approved a $2.26 billion loan, one of its largest investments in the mining industry to date.
LAC shares have risen more than 6% on a year-to-date basis. Pair this with the potential of the Thacker project, and buying shares for a long-term hold could be lucrative. Lithium and electric vehicles could be central to the future of transportation, and holding lucrative mining stocks like LAC could provide long-term benefits.
Harmony Gold Mining Company (HMY)
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If there was a time to buy gold or gold stocks, it may have been since the beginning of March. Gold prices have soared since then. Nowadays, gold has appreciated nearly 13%, outpacing both the S&P 500 and the Nasdaq Composite.
Harmony Gold Mining (NYSE:HMY) is one such gold miner that appears to be trading below where it should. This company engages in the exploration, extraction, and processing of gold with additional copper exploration through its Queensland, Australia-based mine. Last year, gold price growth was relatively slower when compared to the asset growth we witnessed in equities.
As a result, Harmony grew revenues by a little over 15% on a year-over-year basis. 2024 could see revenue figures jump even more, especially if gold prices sustain this rally they’re in now. Trading at 9.5x forward earnings, HMY could be a good bet to make right now.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
