Successful long-term investors look beyond current market fluctuations. They invest in stocks that have long term intrinsic value based on strong fundamentals. In this regard, we are looking at Australian mining stocks as long term investments. The largest stocks in this group are BPH, Rio Tinto, Fortescue Metals Group, Newcrest Mining, and South32. However, there are dozens more like Pilbara Minerals with their lithium mining operations. As the US, EU, and their allies move to maintain access to strategic mineral supplies and processing, Australia stands out. For example, more than fifty percent of the lithium mined in the world comes from “down under.”
Why Invest in Australian Mining Stocks?
Investment in mining stocks gives the investor exposure to commodities like nickel, copper, lithium, iron ore, gold and even rare earth strategic minerals. Many Australian mining stocks have had strong growth and profitability. As the US, EU, Japan, and others seek to secure their sources of everything from aluminum and cobalt to lithium and zinc, Australia is a natural choice with its vast reserves and strategic alliance with the US, Japan, and India in the “Quad.”
Geopolitical Risk Versus Opportunity
A short term risk with mining stocks is that the minerals they mine are commodities. Commodity prices rise and fall with the economy and geopolitical factors like China’s use of its economic clout to reward or punish its trading partners. In the short term mining stocks can offer profitable investments if one times the market correctly. Over the long term they offer long term growth and security. In the case of Australia, they currently send much of their production to China but do not need to so long as other markets are available.
Mining Company Benefits from the Inflation Reduction Act
The New York Times reports that Pilbara Minerals, which is the dominant lithium mining operation in Australia, is looking to set up processing operations within Australia instead of sending ore to China for processing. While this may be expensive to develop, money is available from the US through the Inflation Reduction Act. This law enables the US to provide subsidies and loans to countries with free trade agreements with the US, like Australia. This will help Australia break its dependence on China and firm up supplies to the West that do not flow through China. Australia and the US recently signed a critical minerals agreement that will further facilitate this sort of pivot from China back to Australia and to allied nations. The point is that there will be money available to help Australian mining companies pivot to supply the US and its allies in preference to China and this is likely to generate long term profits for these companies.
Track Records of Australian Mining Investments
Pilbara Minerals was founded in 2005 and was a penny stock trading in the Australian market until it rose above a dollar a share (AUD) in 2021. Today it trades at $4.99 AUD with a P/E ratio of 8.4. It does not pay a dividend. Meanwhile, the second biggest mining company operating in Australia is the multinational, Rio Tinto. It is an English and Australian company that trades on the London and Melbourne exchanges with ADRs available on the NYSE. A Rio Tinto ADR share traded for $10 in 1990 and trades for $58.99 today. It has a P/E ratio of 7.74 and a dividend yield of 15.41%. The stock started the year at $77 before falling to its current price. These two companies are bookends of the mining company investment opportunities in Australia. Pilbara is new, growing, and shows promise. Rio Tinto has been around for 150 years and generates a 15% dividend yield from its many mining operations across the globe. You can sort through the dozens of Australian mining stocks or you can use one of the several Australian mining stock ETFs available for long term exposure to this investment niche.
Australian Mining Stocks as Long Term Investments – SlideShare Version