Mining firms an attractive investment this year, says NinetyOne

Amid persistent inflation, uncertainty surrounding tariff hikes and geopolitical tension, the new year brings a compelling investment case for resources stocks, according to SA’s largest asset manager, Ninety One. 

For long-term investors, the key benefit of resources equities — whether in the form of exchange-traded funds (ETFs) or mining company shares — is that they provide an effective hedge against inflation. 

“This alone is a good reason to hold them,” said Ninety One portfolio manager George Cheveley, with inflation over the next decade expected to average higher than the previous 15 years. 

In the nearer term, the currently low inventory levels of many commodities make it likely that any unforeseen increases in demand — for example, from regulatory changes or technological innovation — will result in rapid and significant price increases. 

Gold, in particular, while expected to remain rangebound between $2,500/oz and $2,800/oz, faces price risks that are “heavily skewed to the upside, making a breakout higher more likely than a decline”, said Cheveley. 

After gaining 30% last year on safe-haven demand, thanks to geopolitical tension and robust central bank buying, gold is expected to sustain its momentum this year, as many of the same geopolitical factors persist.

A bearish scenario, in which strong US economic growth, improved US-China relations, a stronger dollar and low inflation drive a downturn in gold’s safe-haven demand, is far less likely, said Cheveley. 

In the bulk commodities market, resources such as iron ore and coal are also expected to perform better this year as concerns over China’s growth and infrastructure spending slowdown are offset by the strong growth prospects of neighbouring Asian economies. 

Bulk commodities are also poised to benefit from rising US demand, as the nation boosts its investment in power grids and data centres to support the advancement of AI. 

“We are currently seeing the start of a turning point in the capex cycle after years of underinvestment,” said Cheveley. 

“Ahead of Trump’s administration, the market has been dominated by discussions around tariffs and the uncertainty about which tariffs will be implemented and where. 

“Once those details emerge, we expect China to respond competitively by driving economic growth, as the authorities aim to counterbalance the US. As a result, we could see both economies striving to grow strongly.”

In oil markets, concerns surrounding Trump’s tariff plan have made the demand outlook for fuel less certain, but Cheveley noted that the co-ordinated actions by the Opec have “effectively removed the downside tail risk, providing strong support to the market”. 

Ninety One forecasts that oil will remain rangebound, possibly weakening in the first half of the year but with fundamentals tightening later in 2025 “possibly more than most anticipate”, it said. 

With persistent inflation and favourable supply-demand dynamics providing tailwinds for precious metals and bulk commodities, investors in the resource sector are likely to benefit from strong prices. 

While there are a number of ways for investors to gain exposure to resources, Cheveley said mining companies offer a particularly compelling investment case, given that their current valuations still do not fully reflect their upside potential. 

“In metals and mining, valuations don’t fully reflect the upside risk to longer-term pricing, which could lead to increased M&A activity as companies find it cheaper to buy rather than build,” said Cheveley. 

In a similar note from December, Ninety One said it believed that the structural growth drivers underpinning the next investment cycle are not yet reflected in miners’ valuations. 

Additionally, mining companies’ strong balance sheets mean they are more resilient to volatility than in previous cycles. 

“Current valuations are not stretched — in fact, in many cases, they appear quite low. At the same time, resource companies are defensively positioned, with strong balance sheets,” said Cheveley.

websterj@businesslive.co.za