In 2014, mining companies were some of the worst performers of the year, logging in double-digit declines as commodity prices plummeted. In 2015, however, miners have managed to climb into positive territory thanks to one of the biggest uptrends seen this year – the rising dollar.
A Strong Greenback Buoys Miners
Metal and mineral miners were hit significantly in the last year or so as prices for raw materials continued to nosedive while operational costs remained high. Though many commodity prices are still on the decline, these companies now have a significant advantage on the input side of production.
Oil prices, which greatly impact the operational costs of mining companies who rely on fueling heavy machinery, have plunged since June of 2014. This morning, light sweet crude for March delivery fell to $51.90 a barrel, a decline of more than 50% from its peak in June.
While lower oil prices have helped cut costs, the stronger dollar has had an even more significant impact on mining companies. For miners, a stronger dollar increases the value of the revenue they receive from selling gold, copper, iron ore, and other materials they mine, since these commodities are bought and sold with U.S. dollars.
When the dollar rallies, the cost of labor and other input materials bought outside of the U.S. also becomes cheaper. Remember that the vast majority of U.S.-domiciled mining companies have major operations in other countries.
In 2015, the dollar has gained significantly against currencies of major commodities exporters: the greenback is up roughly 5% against the Australian dollar, 7% against the Canadian dollar, and 7% against the Brazilian real.
It is important to also note that the stronger dollar has impacted metal prices—particularly gold—meaning that the rising greenback does have a negative impact on the output side.
What to Watch
For those looking to tap into the mining market, or for those simply wishing to track this latest trend, there are several sub-sectors you should follow:
Some of the biggest dividend-paying companies in these sectors are BHP Billiton (BHP ), Rio Tinto (RIO ), Goldcorp (GG), AngloGold (AU ), Barrick Gold (ABX), and Freeport McMoran (FCX ).
A Short-Term Trend
Since we here at Dividend.com focus on long-term investing, it is important for us to emphasize that this latest mining trend is likely a short-term one, since there is a limit on how much a stronger dollar can help the beaten down industry. Furthermore, other macro and microeconomic factors can greatly affect the performance and profitability of these companies. As always, we encourage you to do your homework and be comfortable with the risk/return profile of any potential investment.
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