Mining Industry Analysis
I. Industry Classification: a. Life Cycle Position:
The mining industry is in the mature phase of the Industry life cycle, with established firms having a stronghold in the industry and specific products and regions. There is scope for further consolidation within the firms in the industry and expected returns are high as the global mining index has outperformed the overall market indices.
b. Business Cycle:
The mining industry is a cyclical industry as the change in GDP affects the change in Earnings per share of mining companies to a great extent. Please see the analysed graph and data below.
The average beta with the London Stock exchange for the industry is 1.6, thus mining companies are highly positively correlated to the market performance. Thus the industry has a possibility of high returns but also has higher risk and hence mining stocks are volatile stocks to invest in.
Mining stock valuations are closely tied to commodities prices, which are determined largely by supply and demand fundamentals.
II. Demand Analysis:
Mining companies supply commodities used in products and equipment found in a wide variety of sectors, such as construction, automotive, aerospace, and telecommunications.
Until recently, the United States and other major industrialized countries, including those in Western Europe and the Pacific Rim, have historically been the primary consumers of metal. But, in the past several years, developing nations, most notably Brazil, Russia, India and China, have risen in prominence. Their expanding infrastructures and middle-class populations suggest greater commodities demand in the coming years.
Following are the primary customers for mining companies: * Governments * Manufacturing and Construction companies * Jewellery makers E.g. gold, silver and diamond * Other Retailers
The sales and demand of mining products have increased considerably over the last five years with an average yearly
The mining industry is in the mature phase of the Industry life cycle, with established firms having a stronghold in the industry and specific products and regions. There is scope for further consolidation within the firms in the industry and expected returns are high as the global mining index has outperformed the overall market indices.
b. Business Cycle:
The mining industry is a cyclical industry as the change in GDP affects the change in Earnings per share of mining companies to a great extent. Please see the analysed graph and data below.
The average beta with the London Stock exchange for the industry is 1.6, thus mining companies are highly positively correlated to the market performance. Thus the industry has a possibility of high returns but also has higher risk and hence mining stocks are volatile stocks to invest in.
Mining stock valuations are closely tied to commodities prices, which are determined largely by supply and demand fundamentals.
II. Demand Analysis:
Mining companies supply commodities used in products and equipment found in a wide variety of sectors, such as construction, automotive, aerospace, and telecommunications.
Until recently, the United States and other major industrialized countries, including those in Western Europe and the Pacific Rim, have historically been the primary consumers of metal. But, in the past several years, developing nations, most notably Brazil, Russia, India and China, have risen in prominence. Their expanding infrastructures and middle-class populations suggest greater commodities demand in the coming years.
Following are the primary customers for mining companies: * Governments * Manufacturing and Construction companies * Jewellery makers E.g. gold, silver and diamond * Other Retailers
The sales and demand of mining products have increased considerably over the last five years with an average yearly