Muzhu Mining Ltd. (CSE: MUZU)
Creating lasting wealth by developing gold and silver properties with near-term mining potential
Mining stocks in the Toronto Stock Exchange had a strong start in 2024 after a rough year in 2023, but have recently given back all of their year-to-date gains. Two years ago, a rapid spike in the price of commodities and natural resources, driven by the war in Ukraine, pushed Canadian mining stocks up 27 per cent.
However, shortly thereafter, in an effort to combat inflation, the Bank of Canada began to continually raise interest rates, which hit the debt-dependent mining sector hard and has driven Canadian mining stocks in a downward spiral right now. Even as the price of gold has been hitting record highs recently, the stocks of some of the larger gold producers have not recovered to where investors were expecting them to be.
It’s a question for investors to ponder whether they should buy, hold or sell Canadian mining stocks in the current price environment.
Canadian mining stocks do serve the purpose of diversifying portfolios. Gold stocks, for example, often move in the opposite direction of the broader market, which can serve to help diversify and reduce overall risk. Mining stocks also provide exposure to different and rising commodity prices. When mineral prices rise, so do mining stocks’ profits and potential share prices.
And Canadian mining stocks typically offer dividends, which can be attractive to investors who are looking for income in times of high interest rates. The mining sector also offers high growth potential, especially for those exploring and developing new mines. Although this also comes with risks, there is also the opportunity for great returns in a recovering market.
And there seems to have solid reasons for selling mining stocks as well, with the primary reason being that mining stocks are under-performing as a result of low mining investment sentiment, and investors may see more losses if they continue to wait.
This, coupled with the lacklustre outlook for global economic growth, means that demand for minerals is more or less affected. And falling mineral prices are affecting the profitability of mining companies, which will put further downward pressure on stocks. In addition, investors and analysts alike seem to view mining as an unstable sector, which is putting selling pressure on mining stocks.
If you already own Canadian mining stocks, the best strategy for now is to hold. Minerals are used in areas that are expected to grow such as technology, infrastructure and clean energy. This will help mining companies generate long-term profitability, especially as population and urbanization accelerate.
Considering that many mining stocks are undervalued after price declines, now is also a good time. Lower share prices offer a good buying opportunity for investors banking on a rebound, especially stocks with strong fundamentals, diversified operations and a focus on responsible mining practices, such as Teck Resources (TSX:TECK.B).
The company focuses on copper, zinc and steelmaking coal, with the steelmaking coal business being sold off, providing additional opportunities for investors. Over the past five years, Teck Resources’ earnings have grown substantially, with revenues increasing by an average of 8.2 per cent per year.
The company’s share price has fallen 5% in the last year, but has risen 13% since bottoming out in November. As such, now is a good time to take advantage of the rebound, as well as lock in a 0.94% dividend yield. Given the 11.6x P/E ratio, analysts think Teck Resources stock is worth considering a buy over other Canadian mining stocks.
