Our fund, JSS Sustainable Equity – Strategic Materials, invests across the whole value chain for strategic materials. Around 70% to 80% is invested in upstream mining companies. The remainder goes to recyclers, mining equipment manufacturers, battery producers and advanced materials companies. These businesses benefit from the same structural trends, but their earnings often swing less than those of miners.
I score every commodity each month on five factors: the marginal cost of production, inventory levels, the economic cycle, the supply-demand balance and trade barriers. This framework helps us to invest when prices are low. I then rank mining stock by operating cash costs, execution track record, jurisdictional risk, balance-sheet strength and valuation. This is augmented by detailed mine-by-mine valuation models, allowing us to stress-test valuations.
The fund is classified under Article 8 in the EU's SFDR sustainability regulations, meaning we promote environmental or social characteristics, which is relatively rare in the mining sector. For us, sustainability is closely linked to returns. Poor relationships with local communities, regulators, or governments can result in mine delays, higher costs, or loss of a licence to operate. Strict environmental and social standards therefore help protect returns. Here are three of the stocks we like.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Three strategic materials stocks for your portfolio
Acerinox (Madrid: ACX) is a Spanish stainless steel and speciality alloys producer. Through its Haynes International business, the company builds high-performance alloys designed to withstand extreme heat and pressure. These specialised strategic materials are used extensively in aircraft engines and industrial gas turbines. Furthermore, they serve critical aerospace applications such as rocket nozzles and pumps aboard vehicles exploring the frontiers of space.
Wheaton (LSE: WPM) is a streaming company rather than a traditional miner: it provides upfront financing to mining companies in exchange for the right to purchase a portion of their future gold and silver production at predetermined prices. The attraction is the business model. Wheaton does not operate mines itself, so it avoids much of the exposure to rising wages, energy prices, equipment costs and operational problems that can squeeze traditional miners. This gives it a structurally different and, in my view, lower-risk exposure to precious metals. I also see a robust pipeline of future growth.
Large copper projects often contain valuable gold and silver byproducts. These create opportunities for companies like Wheaton to provide financing through streaming agreements. Wheaton can participate in the growth of new mines without taking on the full operational risk of owning and running them.
Freeport-McMoRan (NYSE: FCX) is one of the world's largest copper producers, giving investors exposure to what I see as a critical commodity for the coming decade. Copper is essential for electrification, power grids, data centres and heavy industry. Demand is likely to rise, while supply is proving hard to bring online quickly. That gap between demand and supply could support prices. US trade policy may also favour domestic producers over time. Freeport's giant Grasberg mine in Indonesia is ramping back up. This follows a disruption last year that cut output. Restored production offers a path to growth. The company also carries meaningful gold exposure alongside copper.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
