If you tune into what Dr Copper is telling us, 2021 is shaping up to be a year of mammoth growth for the global economy.
Copper, as you may have heard, is often said to have a PhD in economic forecasting. That's because the metal is widely used across the construction industry in wiring and plumbing. And its prevalence in batteries makes copper increasingly important in the transition away from fossil fuels.
Hence when the demand, and subsequently price, for copper go up, it tends to indicate a lot of economic activity ahead.
And the price of copper hit 8-year highs last Thursday, trading at US$8,179 (AU$10,622) per tonne. It's down a touch since then, currently at US$8,131 per tonne. But that's still close to double the US$4,630 per tonne that copper bottomed out at on 23 March 2020. And more than 31% higher than where it was trading on 11 January last year, before anyone was taking COVID-19 seriously.
And it's not just copper.
Iron ore, Australia's largest export earner, is trading near historic highs of US$170 per tonne.
Then there's gold. While down from its 6 August record (US dollar) highs of US$2,063 per ounce, the yellow metal is still up 18% since 11 January 2020. And the gold price is up 43% over the past 2 years.
All this, of course, has been good news for well-positioned ASX mining shares. But what can shareholders expect in 2021?
The world needs these Aussie commodities
As investors, it's important to know how commodities, like copper, have been trading over the past year. Obviously, it's even more important to get a handle on the likely prices they'll be fetching for the year ahead.
When it comes to copper, Stephane Andre, a portfolio manager at Alphinity Investment Management, has a bullish outlook for 2021 (quoted by the Australian Financial Review):
Copper is benefiting from the green infrastructure and electric vehicle demand boost. We believe supply will struggle to meet demand growth. Market copper price expectations for 2021 and 2022 of $US3.2 a pound appear low versus the spot price of $US3.6 a pound.
Ben Cleary, a portfolio manager at Tribeca Investment Partners, is optimistic over a wider range of commodities:
The supply issues look multi-year from here. We're comfortable the resources sector, from an earnings perspective, still looks pretty cheap versus the broader market, but it still looks cheap versus itself – in that most stocks are still trading below a mid-cycle multiple.
Like Stephane Andre, Cleary points to the growing green revolution as a trend that now supports many commodity miners:
We've gone from the resources sector being the red-headed step-child when it comes to ESG to being a leading industry within the ESG movement because you can't decarbonise the world without commodities.
5 ASX 200 mining shares
With Australia's (and most of the globe's) interest rates at rock bottom – and forecast to remain there for the next few years – investors are increasingly eager for shares paying regular dividends.
When you're hunting for ASX income stocks though, you want to avoid those companies that are more likely to see their share prices fall. The ideal share, at the end of the year, will not only pay you a handsome dividend, but also see its share price rise (capital appreciation).
When it comes to 5 leading ASX mining shares that could fit the bill here, we turn to Don Hamson, founder and managing director of Plato Investment Management.
As reported by the AFR, Hamson says:
BHP, Rio and Fortescue are pulling iron ore out of the ground at $US12 or $US14 a tonne, so there's a pretty good margin there. I think at $US168 a tonne it's probably not sustainable, it'll probably come back a little, but even if it came back $US50 a tonne, where it was not that long ago, those miners are still going to be very, very profitable. We expect pretty good dividends from all of them.
The BHP Group Ltd (ASX: BHP) share price is up 18% over the past 12 months. BHP pays a 3.8% dividend yield, fully franked.
The Rio Tinto Limited (ASX: RIO) share price is up 20% over the past 12 months. Rio pays a 4.6% dividend yield, also 100% franked.
And last, but certainly not least, the Fortescue Metals Group Limited (ASX: FMG) is up 133% over the past 12 months. Fortescue pays a dividend yield of 7.0%, fully franked.
As for leading S&P/ASX 200 Index (ASX: XJO) dividend-paying gold miners?
Hamson likes Evolution Mining Ltd (ASX: EVN) and Regis Resources Limited (ASX: RRL). He forecasts dividend yields of 4–5% from the gold miners in the year ahead.
In the year gone by, the Evolution share price is up 29% since 13 January, 2020. The company pays a 3.2% dividend yield, 100% franked.
The Regis share price went the other way over the past 12 months, down 13%. Regis pays a 4.2% dividend yield, also fully franked.
But what about China's economic sabre rattling?
With China still the biggest buyer of most Aussie commodities, many investors are concerned about the impact of the recent, diplomatic-driven trade disruptions between the two nations.
Taking the long-term investment view, London-based Appian Capital Advisory's CEO Michael Scherb, however, isn't worried about the current trade spat (quoted by the AFR):
We are not concerned by it, we see it as a short-term dynamic and being a 10 to 15-year investor, Australia is going to continue to be a very attractive place to park our capital…
Australia for us is a primary destination. One difference between [Appian's first fund] and now is we have a presence now in Sydney and we have team members in Brisbane, Melbourne and Perth too, so it is a real dedication to increase our exposure and invest into Australia.
Appian's newest $1 billion fund is aimed at mining projects across the globe that should benefit from the green revolution. So far, its biggest single investment is a privately held mineral sands project in Victoria.
