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Best ASX mining stocks to watch this year
The top Australian mining and resources shares for striking stock market gold.
Key takeaways
- Mining stocks are some of the biggest hitters on the ASX.
- You can buy individual mining stocks or use an ETF to diversify.
- Mining is one of Australia's biggest exports but is still subject to global economic trends.
Australia is known as the lucky country, blessed with an abundance of natural resources.
Predictably, this means there's also an abundance of mining stocks on the Australian Securities Exchange (ASX), including some of Australia's indisputable blue chip companies like BHP, Fortescue and RIO Tinto.
What are the best mining ETFs in Australia?
Here are some of the largest exchange-traded funds (ETFs) that track the Australian and global mining sectors and are available to trade on the ASX:
- BetaShares Gold Bullion ETF (QAU)
- BetaShares Global Gold Miners ETF (MNRS)
- BetaShares Australian Resources Sector ETF (QRE)
- VanEck Vectors Gold Miners ETF (GDX)
- VanEck Vectors Australian Resources ETF (MVR)
What are mining stocks?
Mining stocks are companies listed on a stock exchange that extract minerals from the earth.
Mined materials vary in composition and can be divided into the following major categories:
- Energy materials. Bitumen, coal and uranium.
- Fertilisers. Boron, rock phosphate, potash and sulphur.
- Industrial metals. Aluminium, cobalt, copper, iron ore, lithium, nickel and zinc.
- Industrial minerals. Asbestos, bentonite, graphite, gravel, gypsum, limestone, mica, potash, pumice, salt, sand, silica and talc.
- Precious metals. Diamond, gold, iridium, mercury, osmium, palladium, platinum and silver.
Mining is a critical sector to the Australian economy, making up for a large chunk of our resources, which has helped propel our economy as a whole.
Major and juniors
There are 2 major mining categories known as the majors and the juniors.
Majors refer to mining operations that are well established, usually have decades of history, have operations around the world and have fairly steady cash flows. The majors in Australia include the likes of BHP, Rio Tinto and Fortescue Metals.
The majors have a proven history of making money. They can break down their costs into per tonnage and overall make it easier for investors to evaluate their share price.
On the other hand, juniors are small mining companies with less working capital and shorter histories than their major counterparts. Think of them as a type of growth stock specific to the mining industry.
They are rarely well funded, have short histories and are more based on higher hopes. On the upside though, given they aren't well established, they can have a higher upside should they be able to develop in their field.
Why invest in mining stocks?
The old saying goes: if you can't grow it you have to mine it. Thanks to its long history, economic viability and global demand, the mining industry holds great potential for profit, and mining stocks can pay strong dividends.
Many industries rely on mining efforts to produce the materials needed to manufacture their wares and services. Without cobalt, electric vehicle manufacturers would flounder. Without uranium, we wouldn't have nuclear energy.
Mining is a time- and energy-intensive process, but mining companies continue to expand their reach thanks to the international demand for what they source and produce.
This type of global reliance on mined materials makes this industry among the more powerful and viable investment categories.
Major mining companies offer the opportunity for steady returns and dividends while junior mining companies hold the potential for rapid growth. Before investing, you should research the mining company that interests you and what materials it yields to determine potential benefits specific to the product.
How many Australians own mining stocks?
According to Finder data, 39% of Australian investors own mining stocks1, making it one of the most popular sectors with local investors.
Risks of investing in mining stocks
The mining industry isn't immune to risk and faces several unique challenges, chief among them being economic and geopolitical shifts.
The mining industry tends to do well in an up market because the profitability of this sector is largely tied to the health of the global economy. When demand for mined metals and materials is high, mining companies are well-positioned for strong and consistent cash flow. But when demand is low in response to a down market, mining companies may suffer.
Mining companies are also vulnerable to political regulations depending on where their mines are located. Many mining stocks on the market are international companies with mine locations across the globe. A mine's location can have a big impact on a mining company's profitability as the political environment of the country the mine is located in can impact mining processes and material prices.
Mining companies are also unable to set the price at which they sell their products. The price of, say, iron ore is determined by the future markets. This limits the potential brand power of mining companies.
Compare trading platforms to trade mining stocks in Australia
You'll need a brokerage account to invest in mining stocks in Australia. Compare options by features and fees to find the account that best meets your needs.
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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Bottom line
Major mining stocks represent a potential long-term investment with the opportunity for steady gains. Junior mining stocks may have more growth potential but are typically riskier investments. Before you purchase either, review your platform options to find the brokerage account in Australia that's ideal for your investment goals.
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