Are these the best ASX mining stocks?

Australia as a country is synonymous with mining culture.

This is primarily for three reasons: first, it has large world-class deposits of critical minerals and precious metals, second, its 26-million-strong population is comparatively small and 72% live in major cities, making mining remote areas unlikely to face significant disruption, and finally, it is ideally located close enough to China to facilitate cheap trade with the world’s second-largest country.

Iron is by far the most important metal that Australia mines, and iron ore itself is the country’s single largest source or export revenue, worth AU$133 billion in 2021-22. The next three most important mining exports, coal, gold, and copper combined together are still not as valuable in export terms. For context, Australia is the world’s biggest exporter of both iron ore and coal.

Of course, most of this iron has been funnelled into China, by far Australia’s largest two-way trading partner. Despite recent economic concerns as a result of the pandemic, Australia has benefited huge from the Chinese economic miracle.

Critical Minerals could take centre stage in 2023 — copper, cobalt, lithium, and nickel — are all essential for the green revolution, and in particular, mass adoption of electric cars. The long-term supply gap for these metals has been reported extensively both here at IG and elsewhere, and should help to prop up the prices of these commodities, even through the recession.

How to buy or invest in mining stocks

You can invest in any of the ASX-listed mining stocks we have discussed today in two ways: either through share trading or derivatives trading. Share trading means that you take direct ownership of a company’s stock, meaning you could potentially profit if the share price increases in value or benefit from any dividends a company might decide to pay.

By comparison to owning the shares outright, derivatives trading – such as CFD trading – allows you to speculate on the price movement of a company’s shares without actually taking ownership of them.

10 best ASX mining stocks to watch in 2023

1. Rio Tinto

Rio Tinto investors benefit from diverse mining operations, with a main focus on iron ore, aluminium, and copper. Worth nearly AU$172 billion, the miner is dual listed in London, the miner targets returning between 40% and 605 of underlying earnings back to investors in dividends each year.

With the price of iron ore largely dependent on China fully reopening from its lockdown cycles, Rio is actively seeking to diversify, seeking out lithium acquisitions in Australia, and having already bought out a $3.3 billion Mongolian copper mine.

2. Newcrest Mining

Newcrest Mining is Australia’s largest gold producer, boasting a market capitalisation close to AU$19 billion. Despite being listed in Australia, Newcrest has operations spanning the globe, with mines in Canada, Australia, PNG, and Papua New Guinea.

Centrally, the miner touts low-cost and long-life mines, and also has a number of promising brownfield and greenfield projects in the pipeline. It could be a prime beneficiary of gold’s rising price in 2023, with the precious metal expected to rise as interest rate increases slow and global recession takes hold.

3. BHP Group

BHP Group is Australia’s largest diversified mining company with a market cap of AU$234 billion, and operations spanning iron ore, coal, copper, petroleum, gas and nickel. BHP, like Fortescue and Rio Tinto, was a significant benefactor of the recent runup in iron ore prices in 2021, but like its rivals, is dependent on strong iron ore prices.

Like Rio, BHP is dual listed on both the Australian Stock Exchange and the London Stock Exchange. However, company remains headquartered in Melbourne, Australia.

4. Fortescue Metals Group

Fortescue Metals Group is unlike competitors in that it is a pure play iron ore miner. Though the company was mired by operational uncertainty at the start of the last decade, it has since grown from strength to strength, and is now one of the largest public companies in Australia.

Much of its success can be attributed to China’s insatiable demand for iron ore, with FMG’s lower grade mix increasing exponentially in popularity in the last few years. Of course, investing a pure-play iron miner means accepting an increased risk-reward ratio.

5. South32

Despite losing a quarter of its market cap since its all-time-high in April 2022, South32 remains an important Australian miner for its coal mining activities, despite sustained political pressur eon the fuel and solid environmental concerns.

While South32 may be best known for its coal operations, the miner’s operations span significantly beyond that, with production across aluminium, energy, metallurgical coal, manganese, nickel, silver, lead and zinc. And it’s geographically diversified across Australia, Africa, and South America.

6. Northern Star Resources

While not as large as Newcrest, Northern Star Resources touts a number of tier-1, low sovereign risk operations across Australia (Jundee, South Kalgoorlie) and North America (Pojo). Speaking to the prolific nature of these operations, at the time of and to date, the miner had produced over 20 million ounces of gold. Moreover, it holds a net cash and bullion position of AU$473 million, a strong position in a time of rising rates.

As the miner notes on its website:
‘Northern Star has a portfolio of low-cost, high-grade underground gold mines, and is firmly focused on maximising Shareholder returns.’

7. Mineral Resources

The smallest of the iron ore miners on this list, Mineral Resources nonetheless boasts a portfolio of what is described as a set of world-class mine sites across the Pilbara and Goldfields regions within Australia. And its small size does come with one advantage: it’s been able to grow by almost 300% over the past three years.

A distinctly forward-focused miner, the company notes on its website: ‘We look for opportunities to grow our core business through producing commodities and innovation. In executing this model, we are undertaking a number of key growth projects that, combined, will deliver a 30 to 50-year pipeline of work to our mining services business.’

8. Evolution Mining

Like Northern Star, Evolution Mining focuses on low risk, tier-1 jurisdictions – with operations across Canada and Australia. The miner’s key growth prospects include: Cowal underground, Red Lake transformation, Ernest Henry mine life extensions and Mungari discovery.

From a strategic perspective, management is focused on driving growth by ‘improving the quality of our assets rather than increasing the number of assets in the portfolio.’ For context, the company maintains that mid-tier producers tend to deliver shareholders with the best returns. However, the miner has halved in value since late 2020, and could now be excellent value.

9. IGO

ESG investors often steer clear of ASX mining stocks, but IGO is the exception to this rule for many. Through its Nova nickel-copper-cobalt operation, it’s focused on developing mine sites to drive a clean energy future.

The miner has a number of exploration projects across Australia and Greenland in progress, including Kimberley, Paterson, Raptor, Lack Mackay, Fraser Range, and Frontier. Management describes exploration and discovery as core to IGO, the key platform for its growth-in-value strategy.

10. Pilbara Minerals

Pilbara Minerals operates and owns a 100% interest in the Pilgangoora Project near Port Hedland in Western Australia, widely regarded as one of the largest hard rock lithium deposits in the world.
Lithium demand is already at record levels and is expected to increase by another 1,000% by 2025. Pilbara is widely regarded as the trailblazer of the ASX lithium boom, and despite a recent fallback, has seen a spectacular rise in recent years.

Of course, some analysts, including those at Goldman Sachs and Credit Suisse are sceptical that lithium’s current price levels are sustainable. But with the EV revolution accelerating, demand is certain to stay elevated.

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