Global commodities stocks have been caught up directly in the trade war between the US and China. But despite the tariff-related volatility spreading through global markets this year, some of the largest UK-listed mining stocks have managed to gain ground.
Shares in the largest FTSE 100 mining stock, Rio Tinto RIO, have risen year to date but are still screening as undervalued. The Morningstar UK Basic Materials Index, which holds Rio Tinto as its largest holding with a 36% weight, is up so far in 2025.
Despite the obvious challenges, there are positives for the sector too: the renewable energy transition is resource intensive, and commodities like copper are booming.
China’s Economic Growth is Key for Mining Stocks
As a resource-hungry country, China is a swing factor for mining companies. They benefited from the post-pandemic bounce in 2021 and were able to distribute special dividends on the back of exceptional profits.
But China’s appetite for raw materials slowed as the economy battled an ailing property sector, weak consumer demand, and, most recently, Trump’s tariffs. Still, the country has shown a willingness to pump cash into the economy in a bid to reinvigorate growth - and this has helped boost demand for mined products for infrastructure projects.
Michael Field, chief market strategist EMEA at Morningstar, says that China doesn’t need to be booming for mining stocks to thrive.
“The Chinese economy has been struggling since the pandemic. But if you look at their targets for the year, China’s still looking to grow at 5%. Do I think China’s going to have a blowout year and miners are going to benefit as a result? No, I don’t.”
“But do we need that to happen for miners to do well? No. They’ve been managing so far without that massive growth from China.”
And while the era of bumper special dividends may be over for now, London-listed miners are still in scope for dividend investors.
Callum Abbot, portfolio manager of the JP Morgan UK Equity Core Fund, which has a Morningstar Bronze Medalist Rating, says:
“We like the cash generation, we like that they are more shareholder friendly, that they are giving us good dividends. We like that they are buying back their shares, and we think this will continue going forwards.”
Which Mining Stocks Are Overvalued or Undervalued?
Morningstar analysts cover four mining stocks: two of these, Glencore GLEN and Rio Tinto, are screening as undervalued, while Anglo American ANGLO and BHP Group BHP are screening as fairly valued.
There has been plenty of consolidation in the sector too as the mining giants battle slower growth: Rio Tinto and Glencore held talks on a merger last year, while BHP moved its primary listing to Australia in 2022. Anglo American, which has a secondary listing in South Africa, has also been the target of BHP’s takeover interest.
After recent results, Morningstar analyst Jon Mills lowered the fair value estimate for Glencore on weaker-than-expected guidance.
“Lower near-term thermal coal and metallurgical coal prices along with concerns over the impact of tariffs on economic growth and copper demand are likely why shares trade 34% below our updated fair value estimate,” he says.
“With spot thermal coal prices of $100 per metric ton below our assumed midcycle price of $107, Glencore is weighing production cuts at some of its Australian thermal coal mines until prices recover. This is sensible but any cuts are too difficult to quantify at this stage.”
Anglo American and Rio Tinto Earnings
Rio Tinto is also screening as undervalued, and Mills says the results, which showed an 8% fall in net profit to $10.9 billon, were in line with expectations.
Iron ore prices were a drag on Rio Tinto’s results for the last financial year, he adds.
“A 10% decline in the average realized iron ore price, to $97 per metric ton, and 2% lower iron ore volumes more than offset higher aluminum and copper prices, along with improved copper volumes.”
Anglo American’s results were below expectations, he says. But booming copper prices are keeping shares supported, he adds.
“After successfully rebuffing BHP’s overtures, Anglo American continues to streamline its portfolio in line with its strategy to sell all businesses other than copper, iron ore, and Woodsmith, its nascent crop fertilizer business.
Anglo is looking to dispose of its platinum and diamond divisions too.
“The company also plans to demerge and spin off its platinum group metals business to shareholders later in 2025. And while it still hopes to sell its De Beers diamonds business, it too is likely to be demerged and spun off, in our view. Both industries are currently in cyclical downturns, so this is likely better for shareholders than trying to sell the businesses at potentially depressed prices.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
