Morningstar Equity Analyst Jon Mills released his fourth quarter mining industry pulse which provided an overview of the industry and commodity prices. Morningstar Investor subscribers can access the report here.

In the report Mills outlined the top picks under his coverage universe.

Top Picks

Iluka Resources

No-moat-rated Iluka's (ASX:ILU) shares are being affected by lower mineral sands prices on reduced demand driven by China’s property sector. Rising interest rates and slowing housing markets in the west are also a headwind. However, we think these concerns are more than reflected in its share price. Longer-term, maturing mines and a lack of large, high-grade, undeveloped resources are likely to support mineral sands prices. The company's proposed rare earths refinery at Eneabba is an option on elevated rare earths prices, and we think

Iluka has cut a good deal with the Australian government, which is funding much of the refinery's construction cost.

Whitehaven

No-moat-rated Whitehaven (ASX:WHC) is penalised by ESG concerns. We think its deal to buy two metallurgical coal mines from BHP is a good one, diversifying its production to roughly half thermal coal, half metallurgical coal, while the debt taken on to help finance the purchase is manageable. Both high-quality thermal coal and metallurgical coal are likely to be supply restrained due to ESG concerns and regulatory opposition, which could support prices longer-term. In our view demand for metallurgical coal for use in steelmaking is likely to remain persistent, while Whitehaven is well-placed to benefit from continued strong demand for high-quality thermal coal over at least the next decade.

Newmont Corp

No-moat-rated Newmont's (ASX:NEM) acquisition of Newcrest extends Newmont’s lead over Barrick Gold as the world’s largest gold miner, with pro forma 2023 sales of roughly 7.3 million ounces of gold. The combined company also has material copper production of roughly 160,000 metric tons as well as numerous development projects that we think are valuable and perhaps overlooked. We think Newmont’s shares are undervalued given its weak sales volumes in the first nine months of 2023, which have led to elevated unit cash costs. However, we think sales volumes will recover, helping lower unit cash costs and driving some improvement in the enlarged Newmont’s current position around the middle of the cost curve.

South32

No-moat-rated South32’s (ASX:S32) undemanding valuation metrics, diversified portfolio of future-facing commodities and strong balance sheet are attractive. Its strategy is to transition its portfolio to metals such as aluminum, alumina, copper, and zinc, commodities more likely to benefit from decarbonisation and electrification. As such, while elevated metallurgical coal prices saw the division comprise around one-third of fiscal 2023 EBITDA, we forecast metallurgical coal to be less than 10% of EBITDA at the end of our forecast period in fiscal 2028. A weak 2023 result and concerns over lower near-term commodity prices drive the valuation discount.