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Four charts explain the outlook for ASX’s big miners

Christine St Anne looks at the prospects for gold, coal and iron ore

Christine St Anne | Morningstar

A subdued China, an uncertain commodities outlook and ESG concerns continue to challenge miners. However, some opportunities are still available for investors. By pinpointing several charts in the latest industry pulse on the mining sector, we uncover a number of trends that position a number of stocks for a solid outlook.

 

ESG and macroeconomic concerns hit miners

Thermal coal miner Whitehaven (WHC) and gold miner Newmont (NEM) are among the stock picks in the latest industry pulse report.

According to Morningstar analyst and report author Jon Mills, compared with other miners, gold and thermal coal firms are cheap on macroeconomic and ESG concerns.

 

Chart 1: Gold and Thermal Coal Miners Undervalued

 

Thermal coal prices to be supported by supply constraints

According to Mills, Whitehaven is well-placed to benefit from continued strong demand for high-quality thermal coal over at least the next decade as highlighted in the chart below.

“Demand for high-quality coal, such as from Whitehaven, is likely to remain robust in Southeast Asia in particular. It helps meet energy needs while reducing emissions relative to using lower-quality coals, such as those from the largest volume exporter, Indonesia.”

 

Chart 2: Thermal coal prices likely to remain elevated

 

Iron ore demand robust despite a subdued China

Moreover, iron ore imports remain strong despite China’s economic challenges. This will bode well for Whitehaven as China accounts for about 70% of seaborne iron ore demand. “Imports remain strong, as reflected in the surprisingly elevated iron ore price and miner profits,” says Mills.

 

Chart 3: China iron ore imports still strong Demand for gold recovering

 

Demand for gold recovering

Chart 4: Demand recovering from COVID-19 lows

 

Gold miner Newmont is also well positioned as demand for gold recovers from Covid-19 lows. “Gold production has recovered from the Covid-19-induced hiccups in 2020 when the output from many mines was either restrained or temporarily curtailed,” Mills says. However, we forecast more modest increases in mine supply across our coverage.”

 

First published on the Firstlinks Newsletter. A free subscription for nabtrade clients is available here.

 

 

Christine St Anne is communications manager at Morningstar Australia. All prices and analysis at 20 September 2023.  This document was originally published in Morningstar on 23 September 2023. This information has been prepared by Morningstar Australasia (AFSL 240892). 

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About the Author
Firstlinks

Firstlinks is an investments newsletter providing content written by financial market professionals with experience in wealth management, superannuation, banking, academia and financial advice. Authors are investors and market practitioners with long careers in senior management positions. Firstlinks shares both their knowledge and their battle scars. Our community of 80,000 users discusses ideas from an informed and impartial point of view. Firstlinks was acquired by Morningstar Australasia in October 2019 to enable an expansion of its services and audience.