The mineral sector is one of the pillars of the country's economy, with revenues of 70 billion reais in the first quarter of 2021 alone, according to IBRAM. In addition, it acts in the generation of jobs and income. When it comes to the mineral sector and the stock market, investment is generally associated with basic raw materials, such as iron ore, and in companies that sell or use it as an input in their processes, such as Vale, CSN, Gerdau, Usiminas.
For a company to have its shares traded on the stock exchange, it is necessary to carry out an IPO (Initial Public Offering), which means an Initial Public Offering. Companies must submit to a series of transparency and accountability rules to the financial market and regulatory bodies so that their shares are offered to the market. In today's text we will talk about how the mineral sector is present in the financial market, especially in the stock market, in addition to exposing new perspectives.
Stock Market and Mining
In Brazil, there are still few companies in the mining sector listed on the Brazilian stock exchange, B3. Currently, the companies in the mining and steel sector that have stood out the most on B3 are Vale, CSN, Gerdau and Usiminas. The market is governed by supply and demand, in such a way that both sectors are closely linked, especially when we talk about iron ore, the main input for steel production.
Basic raw materials, such as Iron Ore, have their price determined by the world market. Thus, it can be an investment option, traded on B3 through the Futures Market, bringing capital protection and advantageous gains, however, it is a high-risk investment, recommended for experienced investors.
Mining Company Shares
The high demand for iron ore combined with high prices directly benefits mining companies , mainly Vale, as well as steel companies CSN, Gerdau and Usiminas.
The results of mining company Vale in the first quarter show a positive outlook. Net revenue more than doubled compared to the same period in 2020, reaching R$69.3 billion. In addition, it obtained a net profit of R$30.6 billion, while from January to March 2020, the gain was R$984 million. In addition, Vale generated almost US$6 billion from operations in the quarter. In terms of dividends paid by Vale, in the second half of 2020, it distributed R$4.26 per share. The expectation for 2021 is positive, since the results presented so far are better than in the previous year.
Thus, we can see that the behavior of Vale's shares and the price of iron ore are closely linked. The graph below shows this scenario.
Steel Industry Shares
Steelmakers, consequently, benefit from this rise in iron ore prices. As it is the raw material for steel production, the final product from Gerdau, Usiminas and CSN has become more expensive. According to the National Institute of Steel Distributors (INDA), prices were adjusted by 35% this year alone, and in 2020, the accumulated increase reached 90%. Even in the face of the pandemic, the construction industry and the basic industry continued their operations, and as a result, steel sales continued to rise.
Like Vale, steelmakers Gerdau, Usiminas and CSN reported positive results in the first quarter. With revenue and profits on the rise, cash generation and a drop in debt, this is what the balance sheets for the months of January, February and March brought with them. Gerdau has an additional factor allied to the Joe Biden government's infrastructure incentive plan. The company has operations in the United States and, therefore, would be able to capture the increase in demand for steel.
The Price of Iron Ore
The price of iron ore is linked to demand from the steel industry , both for domestic consumption and exports, as well as the rise in the dollar. China is currently the main buyer of iron ore , due to the intense development in the infrastructure and construction sectors. The trend is for demand for iron ore to grow , along with its price, and consequently, growth is expected in the stock market of companies in the mining and steel industry.
The price figures are promising. In December 2020, iron ore was priced at $159.85 per tonne at the Chinese port of Qingdao. On May 11, 2021, iron ore was trading at $228.93 per tonne, an increase of more than 40% in just five months. Futures contracts and prices at other Asian ports are also exceeding $200 per tonne, as shown in the chart below.
The First Gold Mining Company on B3
Aura Minerals was the first gold mining company listed on the B3, in July 2020. The company was founded in Canada, where it has also been listed on the Toronto Stock Exchange (TSX) since 2006, and in 2020 it decided to go public in Brazil. It has operations in Mexico, Honduras, the USA and Brazil, and some ongoing projects as shown in the image below.
Gold is an element known as a safe haven in times of crisis. The metal is considered worldwide to be one of the safest financial assets in the economy. This is because, in addition to being a physical asset, gold serves as a backing for the monetary reserves of numerous countries, with its value and demand always guaranteed. To learn more, read our article here .
The mining company's performance over the last year can be seen in the graph below.
Performance of Foreign Companies with Operations in Brazil
The investor market is global, and in addition to the companies traded on the Brazilian stock exchange, there are companies with operations in our territory and with shares traded on stock exchanges outside the country, such as the TSX and ASX, for example. Examples of these companies include Sigma Lithium Resources, Anglo Gold Ashanti, Yamana Gold, among others.
Sigma Lithium, a Canadian company, has a lithium extraction project in the Jequitinhonha Valley, Minas Gerais. Lithium is the raw material for electric car batteries, a technology that is evolving worldwide. The company's shares (SGMA) are traded on the Canadian stock exchange, TSXV. The chart below shows the company's performance over the past year.
Yamana Gold, a Canadian mining company, operates in Brazil in the state of Bahia, in the cities of Santaluz and Jacobina, extracting gold, in addition to other mineral exploration projects under development in the country. Its shares are traded on several stock exchanges, including those in London, New York, Canada, Germany and Buenos Aires. Its performance over the last year on the Toronto stock exchange can be seen in the chart below.
Anglo Gold Ashanti, a major gold producer present in Brazil since 1834, has operations in Minas Gerais and Goiás. Its shares (ANGJ) are traded on 5 global stock exchanges: Johannesburg, New York, Frankfurt, Dusseldorf and Sydney. Check out the performance of the New York Stock Exchange over the past year below.
In short, it is important to emphasize that performance values encompass several factors, such as production, global demand, local conflicts, stock market corrections, among others. Therefore, to make a more accurate assessment, it is important to evaluate all factors combined with the results presented.
New Perspectives
In June 2020, the debate between the director of B3, the director of TSX/TSXV, and the chairman of the Board of the Brazilian Association of Mineral Research Companies (ABPM), mediated by the director of the Brazilian Mining Institute (IBRAM), brought new perspectives. In March of the same year, IBRAM signed a Memorandum of Understanding (MOU) with the Canadian exchanges Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV) to establish a collaborative relationship with the aim of increasing investment in the Brazilian mining sector in the coming years. It is worth mentioning that the Canadian exchanges are one of the main locations that host the most important mining, oil and gas companies in the world. Thus, the expansion of geological research, exploration and development of mining projects in Brazil is expected.
The Brazilian stock exchange believes in the potential for mining companies and small and medium-sized mineral exploration companies to raise funds in the capital market. The goal is for B3 to work together with IBRAM and the Canadian stock exchanges, TSX and TSXV, and also with the government, to evaluate the creation of specific regulatory instruments so that these companies can find open doors to access capital in both the national and Canadian financial markets.
In an article published by In The Mine, Fernando Ferreira, Chief Strategist and Head of Research at XP Investimentos, points out that Brazilian mining companies interested in attracting investors need to pay special attention to good ESG (Environmental, Social and Governance) practices, that is, respect for the environment, social issues and solid governance. In addition, Guillaume Légaré, Head of South America at TSX, highlights the importance of the quality of specific technical geological reports to prove mineral reserves, as well as a governance team with the capacity to develop projects efficiently.
Are you interested in this topic? Check out other articles on the blog or contact us and see how we can help you and your company.
References:
- IBRAM
- IN The Mine
- Investing
- InfoMoney
- Your Money
- XP Investments
- The Cap Portal
- Invest News