The mining industry is undergoing change: ESG criteria are playing an increasingly important role. Megatrends such as the electrification of mobility and industry are changing global demand for commodities. At the same time, security of supply is becoming more critical due to increasing geopolitical tensions. Today, we take a look at three companies – Barrick Gold, BHP Group and Globex Mining (TSX:GMX) – and explain why investors need to rethink their approach to commodity stocks, as old principles no longer apply in today’s market.
BHP Group and Barrick Gold: High cash flows, but risks remain
The commodity industry is diverse. Most readers will associate this sector with the mining of gold, silver, copper, or other raw materials. The two industry giants, BHP Group and Barrick Gold, have been successful in this field. While BHP has achieved a market capitalization of just over EUR 100 billion through the mining of industrial metals around the world, Barrick Gold, with a market capitalization of around EUR 46 billion, is considered the world’s best-known gold producer. Both companies have in common that they invest early in promising projects, bring them into production, and then generate revenue through the sale of raw materials. Since raw material projects are a very long-term business (it often takes ten years to develop a mine before it reaches production), BHP Billiton and Barrick Gold have flexibility in planning their operations. In addition, the sale of raw materials provides a steady stream of revenue, making both companies largely independent of external sources of financing**.
Both the BHP Group and Barrick Gold pursue shareholder-friendly policies, including occasional share buybacks and stable dividends. This has made the shares attractive to long-term investors – many investors reflexively bet on the big players when it comes to investing in commodities and parking capital in a crisis-proof manner. But are the business models of Barrick Gold and BHP Group really crisis-proof? Is the old credo that large commodity multinationals are good crisis stocks still valid today?
Giga-projects in unstable regions – Is that really safe?
The fact that large mining companies generate steady cash flows and are broadly diversified in various ways are likely the most important arguments in favor of stocks such as BHP or Barrick Gold. However, regional focus also presents a risk. Both BHP Group and Barrick Gold are increasingly active in emerging regions that are sometimes politically or administratively unstable. Examples include production sites in Africa, Asia, and South America. These regions are often home to massive projects, such as Barrick’s Reko Diq copper project in Pakistan or BHP’s investments in Botswana and Chile. Such projects require significant initial investments and play a decisive role in the strategic planning of the mining giants. However, if production losses occur, profit warnings are not far behind – bringing with it all the associated risks for investors.
Globex Mining is developing more than 250 projects in North America with partners
Globex Mining (TSX:GMX) offers another option for investing in commodities in a broadly diversified manner other than through shares in large mining companies. The Canadian company operates as a kind of holding or royalty company and secures promising mining projects at an early stage. Its portfolio currently includes more than 250 commodity projects.All properties are located in North America. Globex thus has a regional focus and concentrates on a region with maximum legal certainty and stability. The projects offer almost all elements, from gold and silver to copper, nickel, zinc, rare earths, manganese, and lithium. After acquiring a property, Globex conducts minimal exploration work if necessary and then searches for suitable partner companies. These partners can then further develop the properties at their own expense and, in return, grant Globex Mining licensing fees, known as royalties. One-time payments or profit sharing are also possible contract details. In this way, Globex Mining reduces its own risk and generates a steady income.
License payments as an important pillar of financing
During last year’s PDAC mining conference, Globex CEO Jack Stoch explained that this approach had already succeeded in multiplying an investment of CAD 2 million, ultimately generating CAD 15 million. Although Globex Mining does not have the cash flows of BHP Group or Barrick Gold to pay for exploration programs out of pocket, the large number of projects and regular license payments provide greater financial flexibility than small exploration companies, which often only really push ahead with one flagship project.
According to BloombergNEF, around USD 2.1 trillion in new mining investments will be needed by 2050 to avoid already foreseeable supply shortages and meet the raw materials demands of a climate-neutral world. If these investments are not made, raw material shortages could delay the energy transition and drive up costs – including those related to the consequences of climate change. While mining giants commit early to massive projects and develop them with high capital expenditures, Globex takes a different approach: projects are only advanced in collaboration with partners. This reduces risk and enables unparalleled project diversification. Globex’s focus on North America also largely eliminates country-specific risk.
Is Globex Mining better suited to the spirit of the times?
Globex Mining’s share price rose by almost 30% to USD 1.00 over a six-month period.BHP and Barrick Gold fell by 10.2% and 0.3%, respectively, over the same period. In light of this development, commodity investors should also consider investments off the beaten track. Globex Mining is worth considering due to its innovative and low-risk business model coupled with its low market capitalization of only around EUR 50 million. In a world where long-term planning is increasingly becoming obsolete, Globex Mining offers a reliable business model. The stock is, therefore, in tune with the spirit of the times.
Conflict of interest
Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as “Relevant Persons”) may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a “Transaction”). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.
In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.
For this reason, there is a concrete conflict of interest.
The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.
Risk notice
Apaton Finance GmbH offers editors, agencies and companies the opportunity to publish commentaries, interviews, summaries, news and the like on news.financial. These contents are exclusively for the information of the readers and do not represent any call to action or recommendations, neither explicitly nor implicitly they are to be understood as an assurance of possible price developments. The contents do not replace individual expert investment advice and do not constitute an offer to sell the discussed share(s) or other financial instruments, nor an invitation to buy or sell such.
The content is expressly not a financial analysis, but a journalistic or advertising text. Readers or users who make investment decisions or carry out transactions on the basis of the information provided here do so entirely at their own risk. No contractual relationship is established between Apaton Finance GmbH and its readers or the users of its offers, as our information only refers to the company and not to the investment decision of the reader or user.
The acquisition of financial instruments involves high risks, which can lead to the total loss of the invested capital. The information published by Apaton Finance GmbH and its authors is based on careful research. Nevertheless, no liability is assumed for financial losses or a content-related guarantee for the topicality, correctness, appropriateness and completeness of the content provided here. Please also note our Terms of use.
This is sponsored content issued on behalf of Apaton Finance GmbH, please see full disclaimer here.