Morningstar Investor users sign in here.

Stocks

Our 4 top mining picks

Commodity prices supportive, some opportunities available; China’s modest economic growth weighs.

Mentioned: Newmont Corp (NEM), Iluka Resources Ltd (ILU), South32 Ltd (S32), Whitehaven Coal Ltd (WHC)


Morningstar Equity Analyst Jon Mills released his fourth quarter mining industry pulse which provided an overview of the industry and commodity prices. Morningstar Investor subscribers can access the report here.

In the report Mills outlined the top picks under his coverage universe.

Top Picks

Iluka Resources

No-moat-rated Iluka's (ASX:ILU) shares are being affected by lower mineral sands prices on reduced demand driven by China’s property sector. Rising interest rates and slowing housing markets in the west are also a headwind. However, we think these concerns are more than reflected in its share price. Longer-term, maturing mines and a lack of large, high-grade, undeveloped resources are likely to support mineral sands prices. The company's proposed rare earths refinery at Eneabba is an option on elevated rare earths prices, and we think

Iluka has cut a good deal with the Australian government, which is funding much of the refinery's construction cost.

Whitehaven

No-moat-rated Whitehaven (ASX:WHC) is penalised by ESG concerns. We think its deal to buy two metallurgical coal mines from BHP is a good one, diversifying its production to roughly half thermal coal, half metallurgical coal, while the debt taken on to help finance the purchase is manageable. Both high-quality thermal coal and metallurgical coal are likely to be supply restrained due to ESG concerns and regulatory opposition, which could support prices longer-term. In our view demand for metallurgical coal for use in steelmaking is likely to remain persistent, while Whitehaven is well-placed to benefit from continued strong demand for high-quality thermal coal over at least the next decade.

Newmont Corp

No-moat-rated Newmont's (ASX:NEM) acquisition of Newcrest extends Newmont’s lead over Barrick Gold as the world’s largest gold miner, with pro forma 2023 sales of roughly 7.3 million ounces of gold. The combined company also has material copper production of roughly 160,000 metric tons as well as numerous development projects that we think are valuable and perhaps overlooked. We think Newmont’s shares are undervalued given its weak sales volumes in the first nine months of 2023, which have led to elevated unit cash costs. However, we think sales volumes will recover, helping lower unit cash costs and driving some improvement in the enlarged Newmont’s current position around the middle of the cost curve.

South32

No-moat-rated South32’s (ASX:S32) undemanding valuation metrics, diversified portfolio of future-facing commodities and strong balance sheet are attractive. Its strategy is to transition its portfolio to metals such as aluminum, alumina, copper, and zinc, commodities more likely to benefit from decarbonisation and electrification. As such, while elevated metallurgical coal prices saw the division comprise around one-third of fiscal 2023 EBITDA, we forecast metallurgical coal to be less than 10% of EBITDA at the end of our forecast period in fiscal 2028. A weak 2023 result and concerns over lower near-term commodity prices drive the valuation discount.

 



© 2024 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This report has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or New Zealand wholesale clients of Morningstar Research Ltd, subsidiaries of Morningstar, Inc. Any general advice has been provided without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782.

More from Morningstar
Is Life360 attractive after the shares jumped 40%?
Stocks
Is Life360 attractive after the shares jumped 40%?
Investors pushed the share price higher after announcing they would allow advertising on their social network. 
Woodside Share Price: Is ASX: WDS Undervalued or Overvalued?
Stocks
Woodside Share Price: Is ASX: WDS Undervalued or Overvalued?
As Australia's premier oil player, Woodside's (ASX: WDS) operations encompass liquid natural gas, natural gas, condensate and crude oil.
Wisdom from a career in markets
Video
Wisdom from a career in markets
Morningstar Head of Equity Research Peter Warnes reflects on a 61 year career.
A US dividend aristocrat that’s 21% undervalued and yields 4%
Stocks
A US dividend aristocrat that’s 21% undervalued and yields 4%
This cheap pick faces short-term headwinds but holds long-term promise.
What did Morningstar subscribers buy and sell during earnings season?
Stocks
What did Morningstar subscribers buy and sell during earnings season?
And what do our analysts think of the stocks and ETF?
Fortescue Share Price: Is ASX: FMG Undervalued or Overvalued?
Stocks
Fortescue Share Price: Is ASX: FMG Undervalued or Overvalued?
Fortescue (ASX: FMG) shares are benefiting from high iron ore prices and discounts on its lower-grade ore that are toward the lower end of their...