Mining: digging for opportunities

While many headlines are dominated with the price of gold and all types of fossil fuel, the companies that mine them present investors with an opportunity to gain exposure to these commodities another way.

By investing in the companies and people that dig these daily essentials out of the ground, investors get access not only to the daily price of what they produce, but where and how they do it, too.

These companies extract and produce a huge range of in-demand commodities outside the usual suspects, such as potash, minerals and ore, making them some of the world’s largest companies by value.

But while some have been able to continue without any impact on day-to-day operations, many mining companies have been forced to close operations during the Covid-19 pandemic. However, signs of life are returning to the industry, with some miners such as Anglo American, the world’s largest producer of platinum, have announced it will reopen soon.

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With mining operations set to resume all around the world, investors can sense how the sector will perform during the rest of the year – and given that commodities outperformed other assets during the global financial crisis of 2007-08, now could be the time to take a closer look at mining stocks.

These companies can present a long-term investment opportunity for investors, with many now piling into cheap mining stocks in the belief that the sector will recover and share prices will rally.

One potentially negative-turned-positive is that the mining industry as a whole is also having to deal with investor pressure to act on climate change concerns. For example, oil giant Royal Dutch Shell announced in April that it has set a target to become a net zero emissions energy business by 2050, the latest as part of its commitment to climate change.

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This suggests the industry is starting to respond to environmental concerns and to take the issue of climate change seriously — which should add to its longevity in investor portfolios.

Another positive is that China, which tends to drive much of the world’s commodity demand, is coming out of lockdown, meaning the need to start extracting on a grand scale again may come around again — and sooner than many expect.

As we emerge from the Covid-19 gloom into the light, it may be time for investors to go underground to seek opportunities.

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