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4 Market-Beating Mining Stocks That Might Lose Steam in 2021

With 2020 nearing its end, one can look back at a tumultuous year dictated by a catastrophe in the form of COVID-19 pandemic, which has been wreaking havoc and impacting nearly every facet of life. The unprecedented crisis crippled the global economy. While the same brought some industries to a standstill, others thrived. The mining sector was among the few that were severely impacted at the beginning of the year due to weak demand and disrupted operations. However, the sector has weathered the phase and regained its lost footing on the back of improving commodity prices, solid demand from top-consumer China and resumption of operations.

Miners Show Resilience to Vagaries of COVID-19

The COVID-19 had severely impacted demand in automotive, aerospace, and heavy equipment industries, which took a toll on the mining sector. Metal prices were impacted by decline in customer demand, disrupted global supply chains and market volatility. Miners had to suspend production, slow project construction or curb operations as governments took actions to check the spread of coronavirus. Subsequently through the year miners were allowed to resume operations (with a plethora of safety precautions in place), and mining was declared as an essential service by various governments.

To stay afloat amid the uncertain times, miners aggressively cut down operational costs and postponed capital spending and took steps to improve operating efficiency. They simplified their portfolio, shed non-core assets and reduced debt levels.

Miners have been relying more on automation and digital operations. Apart from reducing costs and driving efficiencies, technology helped manage the risks associated with COVID-19. It supported remote workforces, reduced on-site presence, and aided monitoring of operations from outside. The industry participants are also opting for alternate energy sources in order to minimize fuel-price volatility and secure supply.

Miners Betting on Recovery in Prices

Gold has gained through the year as the pandemic and its devastating impact on the global economy impacted investor’s risk appetite thereby boosting the yellow metal’s safe haven demand. Iron prices have surged 70% this year courtesy of strong demand from China, which has initiated a massive infrastructure stimulus to support the post-pandemic recovery, while supply concerns remain in Brazil and Australia. While sluggish manufacturing activity impacted silver and copper prices at the beginning of the year, the recovery in the manufacturing sector over the past six months has helped pick up prices. Copper prices have been gaining lately as demand in China has picked up.

Owing to the improvement in metal prices, the Zacks Mining - Non Ferrous, Mining – Iron, Mining – Miscellaneous, Mining – Gold and Mining – Silver industries have gained 55.4%, 31.5%, 24%, 22.9% and 22.5% respectively year-to-date. They have outperformed the S&P 500’s and the broader Basic Materials Sector’s growth of 17.3% and 18.4%, respectively. This is shown in the chart below.

Per the latest Earnings Trends, after remaining in the red for the past three quarters, the Basic Materials sector is expected to return to growth with a projected rise of 6.9% in earnings for fourth-quarter 2020. Despite this improvement, the sector is expected to witness a slump of 21% in earnings in 2020 thanks to decline in the first three quarters. However, the slump is not restricted to this sector alone, as 13 of the 16 Zacks sectors are expected to suffer declines — mostly casualties of the COVID-19 pandemic. The prospects for 2021 look promising for the sector with an impressive earnings growth projection of 40.5%.

Though it would be prudent to add a few stocks from this growing sector to your portfolio, you need to watch out for a few stocks, which, despite performing well this year, may lose momentum next year. In this article, we discuss four stocks whose prices shot up this year but these might not prove to be good buys for 2021.

With the help of the Zacks Stock Screener, we have shortlisted four mining companies with a market cap of more than $1 billion, which have outperformed the S&P 500 and the Basic Material sector so far this year on the back of higher commodity prices but don’t have much upside left for 2021. These stocks carry a Zacks Rank #4 (Sell) and have seen their earnings estimates for 2021 decline in the past 30 days.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dump these 4 Mining Stocks Now, to Avoid Disappointment Later

Newmont Mining Corporation NEM: Headquartered in Greenwood Village, CO, Newmont Corporation engages in production and exploration of gold, copper, silver, zinc, and lead. The company has operations and/or assets in the United States, Canada, Mexico, Dominican Republic, Peru, Suriname, Argentina, Chile, Australia, and Ghana. The company has a market cap of $48.8 billion. The company’s shares have gained 39.8% so far this year.

The Zacks Consensus Estimate for the company’s 2021 earnings has moved south by 10% over the past 30 days. Moreover, the company’s projected earnings growth for 2021 is at 65%, much lower than the growth expectation of 96% for this year. The stock has a Zacks Rank #4. The company’s declining production will weigh on the top-line performance. On top of this, higher expected production cost remains a concern for the company.  

Barrick Gold Corporation GOLD: Headquartered in Toronto, Canada the company engages in exploration, mine development, production, and sale of gold and copper properties. The company has a market cap of $41 billion. Its shares have gained 23.9% so far this year.

The Zacks Consensus Estimate for the company’s 2021 earnings has been revised downward by 5% over the past 30 days. Moreover, the company’s projected earnings growth for 2021 is at 20.7%, much lower than the projection of 116% for this year. The stock has a Zacks Rank #4. The company has been witnessing higher costs reflecting impact of lower recoveries and grades, higher energy costs, and increased mine site sustaining capital expenditures. This will continue to exert pressure on the company’s margins.

Alamos Gold Inc. AGI: Headquartered in Toronto, Canada, Alamos Gold engages in  acquisition, exploration, development, and extraction of gold deposits in North America. It also explores for silver and precious metals. The company has a market cap of $3.66 billion. Shares have surged 52.7% year to date.

The Zacks Consensus Estimate for the company’s 2021 earnings has been revised downward by 19% over the past 30 days. Moreover, the company’s projected earnings growth for 2021 is at 36%, much lower than the projection of 115% for this year. The stock has a Zacks Rank #4. The company had halted construction work at its Kirazli project in Turkey, which is touted to be one of the highest-return, undeveloped gold projects, and pursuing renewal of the mine concession. The company had earlier faced protests against the project on environmental concerns.

Harmony Gold Mining Company Limited HMY: The Randfontein, South Africa-based company engages in exploration, extraction, and processing of gold in South Africa and Papua New Guinea. The company also explores for uranium, silver, and copper deposits. The company has a market cap of $2.92 billion. Its shares have gained 33.9% year-to-date.

The Zacks Consensus Estimate for the company’s 2021 earnings has gone down 13% over the past 30 days. The company’s projected earnings growth for 2021 is at 14%, lower than the expected growth of 760% for 2020.  The stock currently has a Zacks Rank #4.

Harmony Gold remains the highest cost South African major producer and is struggling to make money, which may lead to further restructuring. Apart from electricity supply concerns, the company has labor issues resulting in high operational costs. The company’s declining production remains a concern. Its gold production is grappling with lower recovery grades of ores, which produce lower yields. Consequently, even in the scenario of rising gold prices, it will not translate into higher revenues.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Newmont Corporation (NEM): Free Stock Analysis Report
Barrick Gold Corporation (GOLD): Free Stock Analysis Report
Harmony Gold Mining Company Limited (HMY): Free Stock Analysis Report
Alamos Gold Inc. (AGI): Free Stock Analysis Report
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