Investors piled into mining stocks last month betting the global economy will continue to grow in the months ahead.
Bumper stimulus from the Politburo and China’s central bank to breathe life back into the world’s second largest economy lifted sentiment towards the sector, the ‘cyclical’ fortunes of which are closely tied to global growth expectations.
BlackRock World Mining was the most bought investment trust on the Interactive Investor platform for the month, with FTSE 100 Glencore and Rio Tinto both among the top 10 most popular stock purchases.
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Rio Tinto also featured in the top 10 most bought stocks on Fidelity Personal Investing’s ISA and SIPP platforms.
The FTSE precious metals and mining, and industrial metals and mining subsectors added 12.9 and 9 per cent, respectively for the month, compared to a FTSE 100 loss of 1.5 per cent. The mining sector was also boosted by the £1.9billion takeover of gold miner Centamin.
Britain’s largest listed miner, Rio Tinto, which generates roughly 60 per cent of sales from China, gained 11.1 per cent for the month.
FTSE 350 miners have now added almost 18 per cent for the year, propelled by booming gold, silver and copper prices.
The index had previously slumped from a July high on fears of slowing growth, notably in China and the US, highlighting the mining sector’s exposure to the fortunes of the global economy.
Head of commodities research at Citi Max Layton said last month: ‘We had a really strong copper bull market earlier this year, but that’s almost completely unwound in the last few months.
‘I think I guess when you look back on it, the energy transition alone just isn’t enough to drive a sustained copper bull market.
‘You really need an upswing or solid global growth alongside that energy transition demand.
‘Around 80 per cent of copper demand is still coming from non-decarbonisation or non–energy transition sectors — cyclical sectors, you might call them. Those are really struggling this year.’
Equity analyst at Interactive Investor Keith Bowman said the performance of mining stocks in the months ahead will largely depend ‘on the health of the global economy, particularly for its number one and two players the US and China’.
He added: ‘In the US, more interest rate cuts continue to be expected. Recent Euro zone inflation falling below 2 per cent for the first time since mid-2021 could also see further interest rate cuts back in focus for the region – Central Bank moves which could all be positive for commodity demand and miners.’
But how have London’s mining giants performed this year – and what do analysts say about their prospects?
Rio Tinto
The mining giant, like rival BHP, has also been hit by a sharp slowdown in iron ore demand largely as a result of a slowdown in China’s crucial property sector.
Shares in Rio Tinto, which has been battling investors over the future of its London listing, are still down more than 9.4 per cent for the year despite a flurry of recent buying interest.
But while some rivals have this year been forced to slash dividend payouts – a key appeal of the sector for investors – the group remained the world’s 12th biggest dividend payer in the second quarter as overall industry rewards to shareholders sank by almost 20 per cent year-on-year.
Analysts appear to generally back Rio Tinto shares, with data compiled by Stockopedia showing three ‘strong buy’ ratings, 10 ‘buy’ ratings, eight ‘holds’ and one ‘strong sell’.
Glencore
Glencore was the major driver of a sharp fall in mining dividend payments earlier this year when it opted to slash payouts in order to pay down debts and fund takeovers.
The group, which reported a loss of almost $1billion in the first half this year, has moved to focus investment in its LNG and steelmaking coal production facilities amid wild commodity price fluctuations.
Glencore shares are down by around 8 per cent since the start of the year, but analysts appear to back the firm with five ‘strong buy’ ratings, six ‘buy’ ratings and six ‘hold ratings.
‘The strength of Glencore’s balance sheet means the business can comfortably absorb price volatility,’ Mark Crouch, market analyst at eToro, wrote in August.
‘Shareholders will know by now returns on mining investments are sporadic. What matters most however is the long-term trend, which for Glencore, is up.’
Anglo American
The 107-year-old mining giant’s 2024 has been dominated by a major strategy shake-up, which should see the FTSE 100 firm sell its nickel, coal, De Beers diamond and platinum businesses within two years.
Anglo American’s shake-up is a gamble, having rejected a £39billion takeover approach from Australian mining behemoth BHP.
Some analysts say Anglo’s diminished market capitalisation leaves it a prime target for takeover predators seeking a bargain. BHP will also be entitled to take another crack at a takeover after 30 September under City rules.
Anglo shares are up 22 per cent sine the beginning of the year, largely thanks to takeover interest.
Stockopedia suggests a more mixed outlook among analysts, with one ‘strong sell’ rating, two ‘sell’ ratings and eight ‘hold ratings’. Nine analysts have buy or strong buy ratings.
BHP
BHP, which has its primary listing in Australia, is focused on growing its crucial copper business through current and upcoming projects after its attempt to acquire Anglo American collapsed.
Boss Mike Henry, chief executive of BHP, told media recently the takeover was never ‘Plan A’ for the company.
However, the takeover would have boosted the FTSE 100-listed natural resources firm’s copper business, which accounts for about 30 per cent of its profits.
The vast majority of analysts signal a ‘hold’ rating for BHP, according to Stockopedia, with one ‘strong sell’, two ‘buys’ and three ‘strong buys’.
BHP shares are down 14 per cent year-to-date.
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