ASX BHP: Forget banks, it’s time to start buying mining stocks

Over the past year, we have seen a strong performance from the Australian banking sector as well as consumer companies like Wesfarmers. There is an argument that these sectors have benefited from investors avoiding resource stocks, which have been affected by China’s economic challenges, and the supermarkets, which have faced increased regulatory pressure.

. Critical transition materials such as lithium and nickel appear to have bottomed and are recovering. Markets have been disciplined and supply could be constrained if mines become loss making. Commodity prices are also normally a good inflation hedge, a positive factor when inflation is likely to be a little bit stickier.The Chinese sharemarket, which has been under the radar, has made a strong recovery this year and seems to be climbing its wall of worry.

The companies are also indicating that it is much cheaper to buy existing companies and mines than build new mines, as seen in BHP’s recent takeover offer for Anglo American. This is a very bullish signal for the sector.Advertisement While we now see more cyclical tailwinds, when we look at investing in resource companies, we always focus on the mine cost of production and where the mine sits on the cost curve. While most mines will benefit from a cyclical upswing in commodity prices, it is those low-cost, tier one mines that will perform strongly through the cycle.

Source: News Formal (newsformal.com)

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