Better mining stock buy: Endeavour vs Rio Tinto

With M&A activity emerging these days, there is reason for investors to take another look at UK-listed stocks operating in the mining sector.

So we asked two idiots to name their favorite stocks in the sector right now, and why. As always, remember that returns are not guaranteed and past performance is not a reliable indicator of future results.

Endeavor Mining: focus on what matters

By Stephen Wright: Mining is a commodity business. In other words, gold from one company is just like gold from another.

That means there is no pricing power for mining companies. The price of gold is what it is (although it fluctuates) and businesses need to know how to operate at that price.

So what makes one mining stock preferable to another? The answer, in my view, is the quality of the asset in terms of (i) how much can be extracted and (ii) how much it is worth.

Mining Business (LSE: EDV) stands out to me as a very good mining stock. The company owns and operates gold mines located in Africa.

It costs Endeavor between $880 and $930 to extract an ounce of gold from the ground. That is cheaper than Newmont ($1,215), Barrick ($1,269), and AngloGold Ashanti $1,300.

The price of gold is currently around $1,989 per ounce, which is quite high. That is probably some way to explain why the stock is one of the best players FTSE 100 lately.

Buying shares in a gold mining business when gold is expensive is risky. If the price of gold falls, it can reduce the company’s profits.

I’m not sure there’s ever a bad time to invest in a company with lower production costs than its competitors. That’s why Endeavor is the best mining stock to buy.

Stephen Wright has no shares in AngloGold Ashanti, Barrick, Endeavor Mining, or Newmont.

Rio Tinto offers strength in depth

By Royston Wild. Investing in mining stocks could prove incredibly profitable as the world embarks on the next commodity supercycle.

Themes such as the widespread adoption of green technology, the consumer electronics boom, and rapid urbanization in emerging markets mean that demand for the metal is likely to explode.

But investing in businesses that focus on a single commodity can be risky. This is because profit depends on the ideal price environment for only one raw material. Copper manufacturer Antofagasta and gold digger Endeavor Mining is an example of such a company.

Diversified miners allow investors to reduce risk by providing a variety of commodity markets. This is why I chose to add it Rio Tinto (LSE:RIO) shares into its own portfolio last year.

This FTSE 100 operator is the third largest mining company on the planet. It may be known as one of the largest suppliers of iron ore. In fact, by 2022 it will generate almost 70% of its underlying EBITDA from the production of steelmaking materials.

However, Rio Tinto also generates significant profits from copper, aluminum, and some other minerals like lithium and titanium dioxide. The stock price could still fall if demand for iron ore falls. But the company’s broad operations make it less vulnerable to shocks in one or two markets.

Diversification is just one of the reasons I bought Rio Tinto shares. I also open positions due to significant financial strength and ability to invest for future growth.

The expansion of iron ore operations in Western Australia is one example of how businesses are spending money to boost earnings. I would buy more shares in this mining industry giant if I had money to spare.

Royston Wild owns shares in Rio Tinto.