While strong government support and rising production of EVs are boosting the mining industry, supply chain issues continue to have a negative impact. While I think quality mining stocks Glencore plc (GLNCY) and Impala Platinum Holdings Limited (IMPUY) might be solid buys, MP Materials Corp. (MP) might be best avoided, given its weak fundamentals.
Governments are providing subsidies and encouraging foreign direct investments (FDI) in the mining industry. Government policies to support the mining industry is expected to drive growth. The global mining market is expected to grow to $2.78 trillion in 2027 at a CAGR of 6.7%.
Moreover, the growing production of electric vehicles (EVs) coupled with the rising investments in the renewables industry is expected to propel the demand for base metals. The global base metal mining market is expected to reach $744.14 billion by 2030 at a CAGR of 3.8%.
In addition, the use of renewable energy is expected to help mining companies reduce power costs and control emissions in the mines. As the solar or wind projects are built close to the mine sites, the cost of connecting to the power grid is also reduced.
However, macroeconomic events have dominated mining markets for most of 2022, and with the increasing threat of global recession, they are expected to weigh on fundamentals again this year.
In addition to multidecade-high inflation driven by supply chain issues arising from the COVID-19 pandemic, the major economies have been grappling with concerns that are not expected to ease going into this year.
Stocks to Buy:
Glencore plc (GLNCY)
Headquartered in Baar, Switzerland, GLNCY engages in the production, refinement, processing, storage, transport, and marketing of metals and minerals, and energy products in the Americas, Europe, Asia, Africa, and Oceania. It operates through two segments: Marketing Activities and Industrial Activities.
On May 9, 2023, GLNCY and Li-Cycle Holdings Corp. (LICY), an industry leader in lithium-ion battery resource recovery and the leading lithium-ion battery recycler in North America, had signed a Letter of Intent to jointly study the feasibility of, and, later, develop a Hub facility in Portovesme, Italy.
The Portovesme Hub would produce critical battery materials, including nickel, cobalt, and lithium, from recycled battery content.
GLNCY pays $0.70 annually as dividends. This translates to a yield of 8.01% at the current market price, compared to the four-year average dividend yield of 4.39%.
GLNCY’s forward EV/EBITDA of 4.44x is 39% lower than the industry average of 7.28x. Its forward P/S multiple of 0.29 is 72.1% lower than the industry average of 1.06.
During the fiscal year that ended December 31, 2022, GLNCY’s revenue increased 25.6% year-over-year to $255.98 billion. Its adjusted EBITDA increased 59.7% year-over-year to $34.06 billion, whereas its earnings per share increased 256.8% year-over-year to $1.32.
GLNCY’s revenue is expected to be $231.39 billion in the fiscal year 2023. Its EPS is expected to be $1.25 for the same year.
The stock has gained 14.9% over the past nine months to close the last trading session at $11.14.
GLNCY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has a B grade in Momentum and Stability. The stock is ranked #4 out of 43 stocks in the Miners - Diversified industry.
Click here to see the POWR Ratings of GLNCY (Growth, Value, Quality, and Sentiment).
Impala Platinum Holdings Limited (IMPUY)
Based in Sandton, South Africa, IMPUY engages in the mining, processing, refining, and marketing of platinum group metals. The company produces platinum, palladium, rhodium, nickel, and by-products.
IMPUY pays $0.81 annually as dividends. This translates to a yield of 6.52% at the current market price, compared to the 4-year average dividend yield of 5.33%.
IMPUY’s forward EV/EBITDA of 2.27x is 68.8% lower than the industry average of 7.28x. Its forward P/S multiple of 1.02 is 2.9% lower than the industry average of 1.06.
IMPUY’s revenues increased 3.9% year-over-year to ZAR57.80 billion ($3.10 billion) for the fiscal six months that ended December 31, 2022. Profit for the period increased 3.1% year-over-year to ZAR14.83 billion ($794.09 million) and EPS came in at ZAR1644.
Street expects IMPUY’s revenue to be $5.83 billion in the fiscal year (ending June 2023).
The stock declined marginally intraday to close its last trading session at $7.02.
It’s no surprise that IMPUY has an overall rating of B, which translates to a Buy in our POWR Ratings system.
IMPUY also has a B grade for Value, Momentum, Stability, and Quality. It is ranked #5 in the same industry.
For additional ratings for IMPUY for Growth and Sentiment, click here.
Stock to Sell:
MP Materials Corp. (MP)
MP produces rare earth materials in the Western Hemisphere. The company owns and operates the Mountain Pass Rare Earth mine and processing facility in North America.
MP’s trailing-12-month EV/Sales of 9.85x is 590% higher than the industry average of 1.43x. Its trailing-12-month P/S multiple of 11.28 is 969.1% higher than the industry average of 1.06.
During the fiscal first quarter that ended March 31, 2023, MP’s revenue declined 42.4% year-over-year to $95.70 million. Adjusted net income decreased 45.4% year-over-year to $51.33 million, whereas adjusted EPS declined 44.9% year-over-year to $0.27.
The stock has plunged 40% over the past year to close the last trading session at $21.43.
MP’s grim prospects are reflected in its POWR Ratings. The stock has an overall D rating, which translates to a Sell in our proprietary system.
MP also has an F grade for Growth and a D in Stability, Sentiment, and Momentum. It is ranked #24 in the same industry.
Beyond what is stated above, we’ve also rated MP for Value and Quality. Get all MP ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
GLNCY shares were trading at $11.20 per share on Tuesday morning, up $0.06 (+0.54%). Year-to-date, GLNCY has declined -12.96%, versus a 14.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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