The mining sector is a fascinating industry full of compelling companies. I think it's possible to invest in ASX mining shares and make good money. But I'm using a particular investment method to do it.
There are many different mining companies on the stock market, including those producing iron ore, lithium and gold, to name just a few.
Some of the ASX's best-known companies are miners, such as BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), Fortescue Ltd (ASX: FMG), Pilbara Minerals Ltd (ASX: PLS), Northern Star Resources Ltd (ASX: NST) and Newmont Corporation (ASX: NEM).
However, bear in mind that the share prices of mining companies can be highly volatile, particularly when commodity prices move around quite substantially.
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Volatility can create an opportunity
When the whole ASX share market drops during a bear market, there are loads of opportunities to find oversold stocks.
Sometimes ASX mining shares can go through a painful decline, even when the overall market is stable.
No one can forecast with certainty when a commodity price will fall, which is why the profit and share prices of mining companies can be so unpredictable.
The investment advice of "buy low, sell high" is essentially how I approach my investments in ASX mining shares.
I buy when the market sentiment is weak, and the outlook is worrying. I haven't sold any of my resource shares yet, but if I were looking to sell, I'd endeavour to do it when the commodity price is relatively strong.
The types of investments I like
For example, I've invested in Fortescue shares quite a few times when the iron ore price was below US$100 per tonne, and there were worries about the Chinese real estate and construction sector. Buying at that low level unlocked a large dividend yield, and I'm (currently) sitting on good capital gains.
Just over a year ago, when copper prices were weaker, I was looking at Sandfire Resources Ltd (ASX: SFR) as a clear opportunity because of its heavy share price decline (at the time) and exposure to the long-term decarbonisation tailwind.
I've been wrong plenty of times about ASX mining shares, and I may end up being wrong about my investment in Pilbara Minerals.
But, it seems to me that if investors can be brave and choose good miners at a time when the outlook for the commodity price is weak for the foreseeable future, that may be the most opportunistic time to buy.
I'm most optimistic about copper miners because of the decarbonisation tailwind.
I'd be interested in BHP and Rio Tinto because of their growing copper exposure, but iron ore prices remain high, so I am willing to be patient.
Lynas Rare Earths Ltd (ASX: LYC) is an interesting one to me because of its share price decline, but its commodities are still integral to the global economy.
ASX lithium shares are a mixed bag. The lithium price has sunk, yet lithium demand is expected to keep rising. I chose Pilbara Minerals in the sector because it's already producing lithium, it has big plans for growth, and its balance sheet is strong.
I believe volatility can be our friend as long as we're willing to be brave to buy and don't get too greedy when it comes to selling at a certain price.
