Mining companies focus on exploring, extracting, and processing deposits of minerals and metals such as gold, silver, platinum, copper, iron ore, aluminum, lithium, cobalt, and zinc. Several of these commodities are used as raw materials to manufacture goods and infrastructure.
This means that the materials will be in high demand during periods of economic expansion. Alternatively, falling demand amid a challenging environment backdrop will result in lower commodity prices and cash flow for mining companies. Due to the cyclicality of this sector, it’s crucial to focus on companies that can weather and even thrive during economic downturns.
Historically, gold is a precious metal viewed as a store of value and a hedge against inflation. Over centuries, gold has built massive wealth for investors and remains a key investment option even in 2024. Typically, gold has an inverse relationship with interest rates, and the yellow metal should continue to attract investments with multiple rate cuts on the horizon. Finally, geopolitical tensions and increased central bank purchases should act as tailwinds for gold in the near term.
Given these factors, you can consider buying two quality Canadian mining stocks right now to diversify your portfolio.
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Wheaton Precious Metals stock
Valued at a market cap of $41.6 billion, Wheaton Precious Metals (TSX: WPM) is a streaming company that sells precious metals in Canada and other international markets. It sells gold, silver, palladium, and cobalt deposits.
In the first half of 2024, Wheaton Precious Metals produced more than 305,000 gold equivalent ounces and is on track to end the year within its production guidance of between 550,000 and 620,000 gold equivalent ounces.
The company’s revenue in Q2 rose to $299 million, up from $265 million in the year-ago quarter. Higher commodity prices allowed it to increase gross profits by 22% year over year to $186 million in the June quarter.
Wheaton’s long-life, low-cost assets allowed it to generate an operating cash flow of $234 million in Q2 and $450 million year-to-date. Its strong performance showcases its ability to leverage rising commodity prices and profit margins.
With more than $540 million in cash and $2 billion in an undrawn revolving credit facility, Wheaton has the flexibility to fund its outstanding commitments and capacity to acquire additional accretive mineral stream interests.
The TSX mining stock might seem expensive, priced at 38 times forward earnings. However, given consensus price targets, adjusted earnings are forecast to expand by 18.9% annually in the next five years.
Barrick Gold stock
Valued at a market cap of $50.6 billion by market cap, Barrick Gold (TSX: ABX) is a global mining giant. Armed with one of the largest portfolios of tier-one gold and copper assets, Barrick Gold has a significant presence in North America, Africa, and South America.
In the last five years, Barrick Gold has returned close to $5 billion to shareholders via dividends and buybacks. Since the end of 2019, it has reduced its net debt by $3.5 billion and reinvested $8 billion in capital expenditures.
With an annual dividend payout of $0.40 per share, Barrick Gold stock offers you a forward yield of almost 2%. Moreover, these payouts have risen from $0.08 per share in 2016.
Higher gold prices will allow Barrick Gold to expand its adjusted earnings from $1.15 per share in 2023 to $2.09 per share in 2025. Priced at 13.5 times forward earnings, ABX stock trades at a 10% discount to consensus price target estimates in October 2024.
