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Investing in mining stocks

From gold to gravel, there’s room for profit — but geopolitical shifts are a major risk.

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There’s no shortage of options for those who want to invest in mining companies. But investors will need to pay close attention to the price history and location of the material being mined before they buy in, as shifting political tides have the potential to sideline operations.

What are mining stocks?

Mining stocks are stocks from companies that extract minerals and materials from the earth. Mined materials vary in composition and can be divided into the following major categories:

  • Energy materials. Bitumen, coal and uranium.
  • Fertilizers. Boron, rock phosphate, potash and sulfur.
  • Industrial metals. Aluminum, 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.

There are two major categories of mining stocks: majors and juniors. Majors refer to well-established companies with international operations and a history of steady profits — they share the same status as blue-chip stocks in the general stock market.

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.

Why invest in mining stocks?

Thanks to its long history, economic viability and global demand, the mining industry holds great potential for profit.

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. Junior mining companies hold the potential for rapid growth. Investors interested in this category should research the materials produced by the mining company they’re interested in for potential benefits specific to the product.

Risks of investing in mining stocks

The mining industry isn’t immune to risk and faces several unique challenges — chief among them: 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. The location of a mine 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 market projections

In 2019, the combined revenue of the top 40 mining companies worldwide amounted to $692 billion. But 2019 wasn’t a good year for net profit margins — a figure that’s been on the decline for the past decade. Net profits for the industry dropped from 35% in 2010 to 9% in 2019, according to Statista.

That said, employment and total mining gross output for Canada have been robust. In 2018, the Canadian mining industry was valued at $105 billion and contributed $97 billion to Canada’s nominal GDP (around 5%). For comparison, about 10% of Canada’s GDP comes from the energy sector, and around 1.7% comes from retail.

According to The Mining Industry of Canada, the mining sector has directly and indirectly contributed to the creation of 1 in 30 jobs in Canada including many jobs for indigenous people.

Mining stocks

Mining stocks include both domestic and international companies that produce all sorts of minerals and precious metals. If you’re interested in a specific material or commodity, take some time to research the company, its history and its financials before you buy in.

  • Wheaton Precious Metals Corp (TSX: WPM.TO)
  • Barrick Gold Corporation (TSX: ABX)
  • Agnico Eagle Mines Limited (TSX: AEM)
  • Agrium Inc. (TSX: AGU)
  • Teck Resources Ltd Class B (TSX: TECK.B)
  • Avino Silver & Gold Mines Ltd (TSX: ASM.TO)
  • Kinross Gold Corporation (TSX: K)
  • Fortuna Silver Mines (TSX:FVI)
  • First Quantum Minerals Limited (TSX: FM.TO)
  • Kirkland Lake Gold Ltd (TSX: KL.TO)

What ETFs track the mining category?

Mining ETFs invest in companies that generate revenue from mining natural resources. The following ETFs track companies in the mining sector:

  • iShares S&P/TSX Global Gold Index ETF (TSX: XGD)
  • iShares S&P/TSX Global Base Metals Index ETF (TSX: XBM)
  • Horizons Silver ETF Class A (TSX: HUZ)
  • Evolve Global Materials & Mining Enhanced Yield Index ETF (TSX: BASE)
  • BMO Equal Weight Global Base Metals Hedged to CAD Index ETF (TSX: ZMT)
  • Amplify Advanced Battery Metals and Materials ETF (NYSEARCA: BATT)
  • iShares Global Energy ETF (NYSEARCA: IXC)
  • iShares MSCI Global Select Metals & Mining Producers ETF (BATS: PICK)
  • SPDR S&P Metals & Mining ETF (NYSEARCA: XME)
  • VanEck Vectors Rare Earth/Strategic Metals ETF (NYSEARCA: REMX)

You can invest in mining-focused ETFs from Canada, but if you’re looking for more options, you can also explore ETFs that trade on stock exchanges in other countries like the NYSE in the US. There are several Canadian-based brokerages that offer access to international exchanges on which mining ETFs trade including Interactive Brokers and Questrade.

Compare trading platforms

You’ll need a brokerage account to invest in mining stocks. Compare options by features and fees to find the account that best meets your needs.

Name Product Available asset types Stock Fee Option Fee Account Fee ETF Transaction Cost
Wealthsimple Trade
Stocks, ETFs
$0
N/A
$0
Free
Get a $25 bonus when you open a Wealthsimple Trade account and deposit and trade at least $100.
Questrade
Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, International Equities, IPOs, Precious Metals
$4.95-$9.95
$9.95 + $1 per contract
$0
Free
Opt for self-directed investing and save on fees or get a pre-built portfolio and take some of the guesswork out.
Interactive Brokers
Stocks, Bonds, Options, Mutual Funds, ETFs, Currencies, Futures, Precious Metals
Min. $1.00, Max. 0.5% of trade value
$1.50 min. per order
$0 (if monthly commissions are greater than or equal to US$10.00)
Min. $1.00, Max. 0.5% of trade value
Access market data 24 hours a day, six days a week and invest in global stocks, options, futures, currencies, bonds and funds from one single account.
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Compare up to 4 providers

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 that’s ideal for your investment goals.

Frequently asked questions

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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