The metals and mining industry took a hit in the first half of last year as the COVID-19 pandemic halted production and manufacturing around the globe. An improving global economy is now lending support to metal prices because they are an essential part of the industrial sector. Hence, the mining space has already started to recover and now seems poised to grow significantly in the coming months. Notably, the SPDR S&P Metals & Mining ETF (XME) has returned 32.4% so far this year, compared to the broader market S&P 500’s 11.7% gains.
It is true that China is at the forefront of economic growth and commodity consumption. However, the U.S. economy registered 6.4% annual GDP growth in the first-quarter of 2021, and economists at Goldman Sachs (GS) expect the U.S. economy to grow 8% in 2021. A resurgence in domestic industrial activities should drive inflation this year, and investors usually scoop up metals and other commodities during inflationary times. Furthermore, President Biden’s ambitious ‘Build Back Better’ infrastructure plan should drive domestic demand for metals and other commodities. This, coupled with global supply chain constraints, should further drive commodity prices north.
With money printing picking up pace globally and the Fed expanding its balance sheet, metals and commodity prices are expected to continue moving higher. So, we think it wise to bet now on affordable metal mining stocks—Vedanta Limited (VEDL), Centerra Gold Inc. (CGAU), Sierra Metals Inc. (SMTS) and Jaguar Mining Inc. (JAGGF)—that are currently trading at reasonable prices. As direct beneficiaries of rising metal prices, these stocks could witness solid upside in the near term.
Click here to check out our Industrial Sector Report for 2021
Vedanta Limited (VEDL)
VEDL is a subsidiary of India-based diversified natural resources company Vedanta Resources PLC. VEDL is one of the world’s leading oil & gas and metals companies with significant operations in oil & gas, zinc, lead, silver, copper, iron ore, steel, glass substrates, and aluminum & power across India, South Africa, Namibia, South Korea, Taiwan, the UAE and Australia.
In April, VEDL launched Project Pratham with the goal of making VEDL a fully digitally driven company with a focus on significantly improving volume and cost and simplifying business tasks. As such, VEDL has been innovating its core manufacturing processes, ranging from the optimization of polymer consumption in Enhanced Oil Recovery (EOR) to optimizing throughput and metal recovery in zinc mills and smelters to combustion optimization in power plants.
In its fiscal full-year, ended March 31, 2021, VEDL reported $11.72 billion in revenue, increasing 4% year-over-over, due mainly to higher volume at Zinc India, its Aluminum business, its Iron ore and Steel business, and higher realized commodity prices. Zinc India generated record ore production of 15.5 million tons despite pandemic disruptions, culminating in its highest ever mined metal production of 972kt, up 6% year-over-over. VEDL also reported its highest ever aluminum production of 1,969kt during the year. Notably, its EPS surged for the year to $0.42, compared to a year-ago loss.
Shares of VEDL have climbed more than 70% so far this year to close yesterday’s trading session at $14.95. VEDL’s key business delivered record operational performance last year while maintaining its cost and volumes trajectory. But in addition to implementing structural integration and adopting new technology, the company is partnering with Micro, Small and Medium enterprises (MSMEs) to set up downstream and ancillary manufacturing units near its plants.
VEDL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Sentiment, and a B grade for Growth and Quality. It is ranked #2 of 49 stocks in the Miners – Diversified industry.
In total, we rate VEDL on eight different levels. To see additional POWR Ratings of VEDL for Value, Momentum and Stability click here.
Centerra Gold Inc. (CGAU)
CGAU is a Canada-based gold mining and exploration company that explores for, develops and acquires gold and copper properties in North America, Asia and internationally. The company currently operates three mines: The Mount Milligan Mine in Canada, the Kumtor Mine in the Kyrgyz Republic, and its newest mine, the Öksüt Mine in Turkey.
On May 17, CGAU lost the control of its Kumtor mine as the Kyrgyz Government effectively seized the property under environmental and tax legal claims, in addition to legislative changes. This came after the Kyrgyz Republic’s parliament passed a law earlier this month that enabled the Kyrgyz Republic’s government to impose “external management” on companies in the Kyrgyz Republic that operate under concession agreements. Following this, CGAU has initiated an arbitration case against the government to enforce its rights under longstanding investment agreements.
In addition, CGAU suspended its recently issued 2021 production guidance that estimated gold production of 740k to 820k ounces and copper production of 70 – 80 million pounds for 2021. Investors’ outlook on CGAU has taken a hit because the Kumtor mine contributed 67% of its total gold production in 2020. Consequently, the stock has tanked 17% over the past month to close yesterday’s trading session at $7.78.
In the first quarter of 2021, CGAU produced 160,346 ounces of gold and 18.6 million pounds of copper. Notably, The Kumtor mine produced 90,169 ounces of gold at all-in sustaining costs on a by-product basis of $888 per ounce. Its cash flow from operations and free cash flow for the quarter came in at $153.1 million and $72.1 million, respectively. And the company reported a record EPS of $0.57, surging 714% versus the $0.07 year-ago value.
CGAU’s operations were strong last year, and the company exceeded its consolidated gold production guidance, delivering more than 824,000 ounces of gold for the year. The company has picked-up exploration activities at its various projects and earn-in properties, targeting gold and copper mineralization in Canada, Turkey, Finland and USA.
CGAU is a company with a rock-solid balance sheet and thus will likely soon resolve its issues with Kyrgyz Republic authorities. In addition, the Mount Milligan water permits extension it received in April 2021 has extended CGAU’s access to surface water sources to November 2023.
CGAU’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. CGAU also has an A grade of A for Value and Quality. The stock is ranked #1 of 43 companies in the Miners – Gold industry.
Click here to access additional POWR Ratings of CGAU for Growth, Momentum, Sentiment and Stability.
Sierra Metals Inc. (SMTS)
SMTS is a diversified Canadian mining company that is focused on the production and development of precious and base metals from its polymetallic Yauricocha Mine in Peru and Bolivar and Cusi Mines in Mexico. SMTS recently made several new key discoveries, and it is now evaluating more brownfield and greenfield exploration opportunities at all three mines.
On April 21, SMTS’s Board approved an investment of $28 million for the construction of a magnetite processing plant. Its management expects the plant to produce approximately 500,000 tons per year of 62% iron ore fines concentrated at the company’s Bolivar Mine. Also, the company has recently shared drilling results at its Yauricocha Mine and confirmed the presence of high-grade oxide polymetallic ore in the area.
In the first quarter of 2021, its revenue from metals payable increased 25% year-over-year to $69.6 million. Its consolidated production for the quarter included 7.9 million pounds of copper, 1 million ounces of silver, 24.1 million pounds of zinc, 9 million pounds of lead and 2,636 ounces of gold. Notably, the company witnessed record quarterly throughput of 3,728 tons per day at its Yauricocha Mine, thereby achieving a 14% higher throughput versus the same period last year. Its adjusted EPS came in at $0.03, compared to its $0.01 year-ago value.
Shares of SMTS have surged 330% over the past year to close yesterday’s trade at $3.40. The stock is poised to gain further momentum because SMTS’ management anticipates the receipt of a Informe Tecnico Minero permit at Yauricocha this year, which will allow it to increase throughput by 20%. The company also expects to begin construction of an iron ore processing plant at Bolivar this year, which could produce 0.5 million tons per year of 62% iron ore fines. In addition, SMTS is taking proactive steps to lower its transportation and tailing development costs to enhance its profitability.
According to our POWR Ratings, SMTS has an overall A rating, which equates to Strong Buy in our proprietary rating system. SMTS has a B grade for Growth, Momentum and Quality. It is further ranked #1 in the Miners – Diversified industry.
Beyond what I stated above, we also have given SMTS grades for Value, Stability and Sentiment. Get all SMTS’s ratings here.
Jaguar Mining Inc. (JAGGF)
JAGGF is a junior gold mining, development, and exploration company that operates in Brazil with three gold mining complexes and a large land package with significant upside exploration potential from mineral claims. The company’s principal operating assets are in the Iron Quadrangle, a prolific greenstone belt in the state of Minas Gerais and include the Turmalina Gold Mine Complex and Caeté Mining Complex.
In March this year, JAGGF entered an agreement with Canada-based precious metals royalty and streaming company Metalla Royalty & Streaming Limited (MTA), and completed the sale of its Net Smelter Return (NSR) royalty from gold production at the CentroGold Project, that is located in Brazil, for total consideration of up to $18 million.
JAGGF generated $31.7 million in revenues during the first quarter (ended March 31, 2021), rising 3% year-over-year. Its average realized gold price during the quarter was $1,793/oz, 20% higher than the same period last year. JAGGF produced 18,160 oz of gold during the quarter, while the company sold 17,677 oz of gold incurring an all-in sustaining cost of $1,296 per ounce of gold sold. Furthermore, its EPS for the quarter came in at $0.08, surging 300% from the $0.02 year-ago value.
Yesterday, JAGGF issued updated, in-mine diamond drilling results completed at its Turmalina Gold Mine and Pilar Gold Mine, both located in Minas Gerais, and confirmed the expansion of its consolidated mineral resource and mineral reserve growth potential. In fact, shares of JAGGF have returned more than 90% over the past year to close yesterday’s trading session at $5.50.
It is no surprise that JAGGF has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. JAGGF also has an A grade for Value and Quality. The stock is ranked #1 in the Miners – Gold industry.
Click here to see the additional POWR Ratings for JAGGF (Growth, Momentum, Stability and Sentiment).
Click here to check out our Industrial Sector Report for 2021
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VEDL shares were trading at $14.78 per share on Wednesday morning, down $0.17 (-1.14%). Year-to-date, VEDL has gained 68.34%, versus a 12.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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