The mining sector Australia’s largest export industry and mining shares makes up the largest component of companies listed on the Australian Stock Exchange. The performance of the sector is best captured by the ASX Metals and Mining Index which extracts the list of miners included in the main broader ASX 300 market index.
In addition of outlining the best asx mining shares we also provided a summary of the industry the broader mining shares can be split into.
Largest ASX Mining Company
BHP Australia’s largest listed miner and is a staple of many Australia equity portfolios. Similar to Rio Tino, BHP is dual listed on the ASX and the London Stock Exchange.
It is classified as a diversified miner which means the business covers multiple metal and ore segments in which iron ore and copper are the primary industry it is known for. In prior years unlike other miners it had investments in the oil industry however it has exited most of its US oil positions.
ASX Miners
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Best Mining Shares
The simplest macro classification is the materials or mining industry but this can be further broken down into different sub industries based on commodities and each commodity has varying degree of cyclicalities differ from the rest of the industry at different point in time.
So in all not all of the commodity could rise or fall at the same time but will move on its own based on its own industry demand and supply characteristics.
The sector category can be further segregated into specialized areas in the broadly defined as:
- Diversified Miners
- Material Specific Miners
- Gold Miners
- Mining Service Providers
Diversified Miners
Diversified miners is usually used as a proxy to mean the big miners as you only get a stage where you have exposure to multiple commodities via owning a large operating portfolio.
The likes of BHP and Rio Tinto are synonymous with diversified miner category. It is important to make a distinction that while the earnings of these companies are diversified across multiple commodities and there will be a degree of similarity of exposure in commodities like iron ore.
But not all diversified miners are the same. For example Rio Tinto has a large aluminum business and BHP has built some exposure to potash.
The aim of a having a diversified mining portfolio is similar to holding a diversified investment portfolio where the overall performance of the business is not susceptible to the performance of a particular commodity market.
Material Specific Miners
These are companies that are linked to specific commodity segment due to its historical exploration and development activities in which resulted exposure to a particular metal.
These provide single commodity exposure and are the best vehicle for investors who has a direct view on the commodity such as owning lithium to benefit from growth trend towards electric cars.
On the ASX the most common form of single commodity miners are copper, zinc and nickel miners.
Gold Miners
On one hand gold miners are a sector specific miner but due to historical usage and association of gold with money, they trade a material premium to the rest of the sector. Investors typically price gold miners like Newcrest based on the perceived cash flow as well as the reserve in the ground like other mining companies.
However the reserves in the ground are usually worth more as there is higher degree of certainty that there will always be demand for gold vs cyclical exposure of other metals like copper or zinc. The lower cyclicality of gold prices also reduce the perceived risk of owning gold miners but this is an unlikely case in practice if you look at the historical performance of gold stocks.
In one way owning gold miners is like owning a machine that prints money and the reserves in the ground is the storage of gold that has yet been printed. However the distinction of owning gold miner vs gold ETF is you are taking on operation risk and in a perfect world to offset this is that the income component will also grow overtime.
Mining Service Providers
As the old adage goes in a gold rush, it is better to sell shovels than dig for gold. Mining service providers are a segment of the market that is part of the broader material eco-system or supply chain. The range of services they offer include expertise on mine development, third party contractor for mining operations or suppliers of mining equipment.
These companies do not have direct commodity exposure but does have cyclical exposure as during lean periods when miners cut down on spending the service providers are the ones taking the brunt of the cuts and similarly during cyclical upswings, they benefit from above trend growth as they are brought on by the mining companies as their own internal resources are stretched.