Entities that explore, extract, and process deposits of minerals are defined as mining companies. Several of these minerals and metals are crucial to the economy, as they are used by industries to manufacture a wide variety of products. Generally, these mined materials enjoy robust demand in periods of economic expansion, which results in higher prices.
There are several publicly traded mining stocks on the TSX that you can consider buying to diversify your portfolio. But investors should note that mining stocks are cyclical, and demand decelerates rapidly during economic downcycles. So, you need to focus on mining stocks that are equipped to weather market downturns.
Here are three such TSX mining stocks that should be part of your TFSA (Tax-Free Savings Account) portfolio right now.
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Lithium Americas
Lithium mining companies may offer outsized returns to investors in the upcoming decade as the elemental metal is used in the production of battery-powered electric vehicles and other clean energy solutions. The shift towards renewables is gaining pace globally, as countries aim to fight climate change.
One top mining company in this space is Lithium Americas (TSX: LAC), which should start generating revenue by the end of 2023. Lithium Americas has already attracted an investment of US$650 million from auto giant General Motors for its Nevada project, which should be a key driver of sales in the future.
Lithium Americas ended the first quarter (Q1) with US$604 million in cash and US$75 million in available credit, providing it with some room to support its cash burn. Analysts expect the company to report revenue of $350 million in 2023 and $603 million in 2024.
Comparatively, its bottom line might improve to earnings of $1.64 per share in 2024 compared to a loss of $0.7 per share in 2022.
Barrick Gold stock
One of the largest gold mining companies, Barrick Gold (TSX: ABX) is valued at a market cap of $42 billion. Barrick Gold operates tier-one mining assets and aims to produce an average of 6.5 million ounces of gold equivalent each year in the next decade. These estimates also include the company’s copper mining projects.
Its diversified portfolio is supported by a robust balance sheet. For instance, Barrick Gold has reduced its debt significantly in recent years while selling non-core assets, resulting in solid free cash flows.
It also pays shareholders annual dividends of $0.54 per share, translating to a forward yield of 2.2%. Priced at 20 times forward earnings, Barrick Gold stock trades at a discount of 22% to consensus price target estimates.
Largo stock
The final TSX mining stock on my list is Largo (TSX: LGO), a company engaged in the development and sale of vanadium-based energy storage systems. While still unprofitable, Largo’s margins should improve from a loss per share of $0.34 in 2023 to earnings of $0.21 per share in 2024.
Analysts also expect its sales to touch $305 million in 2024, up from $229 million in 2022. Due to its improving metrics, Largo stock is priced at a discount of 100% to consensus price target estimates.
