10 Small-Cap Mining Stocks Hedge Funds Are Avoiding
In this piece, we will take a look at the ten small-cap mining stocks hedge funds are avoiding. For more stocks, head on over to 5 Small-Cap Mining Stocks Hedge Funds Are Avoiding.
The global economy is highly interlinked as it relies on thousands of firms scattered all over the world to make both basic and advanced products. A large variety of items ranging from Apple Inc. (NASDAQ:AAPL)'s smartphones and laptops to Tesla, Inc. (NASDAQ:TSLA)'s electric cars, and Lockheed Martin Corporation (NYSE:LMT)'s advanced fighter jets require basic materials without which these technologically advanced products would not be produced.
At the heart of these industries is the mining industry. From gold to silver, lithium, and rare earth metals such as cerium, yttrium, and scandium, these products use the metals within the production process. Safe to say, the mining industry, in addition to oil and gas exploration, is one of the most important sectors in the world.
Additionally, the boom in the demand for electric vehicles, along with government incentives to shift to electric vehicles within the next couple of decades is also expected to vastly grow the demand for lithium. A report from the International Energy Agency (IEA) takes a look at the different stimulants for different minerals industries such as silver, copper, lithium, and rare earths. It outlines that while copper continues to be the dominant material for conducting electricity due to its superior electrochemical properties, currently, copper producers are reaching their peak capacity, which will lead to a rise in global copper prices. Comparing this report on the copper industry with growth and revenue estimates for the copper mining industry, a research report from Maximize Market Research corroborates these findings. Its compounded annual growth rate (CAGR) estimate for the copper industry is one of the lowest that we have come across, with the research firm estimating that between 2022 and 2029, the industry will grow by a mere 0.80%. This will cause its value to grow by only $5 billion between 2021 and 2029, or from $75.56 billion to $80.60 billion.
Moving forward to rare earth metals, the IEA estimates that the rare earth industry is dominated by China and that poor environmental care in processing these materials is a concern. At the same time, it adds that within the rare earth industry, there is a severe risk of demand mismatch between the metals themselves. It points out that while the demand for neodymium (most commonly used to manufacture magnets as part of an alloy with boron and iron) will be high, the demand for other metals such as cerium (used in bulbs and televisions) will be low. This is a concerning fact since rare earth metals are not found individually, and instead are clumped together.
Therefore, the rare earth metal companies have to mine all of them and carry the risk of having large inventories of some materials while having to mine more due to running short in others. Combining this with market research reports, a study from The Business Research Company points out that the rare earth metals industry was worth $6.58 billion in 2022 and will grow to $7.29 billion this year through a CAGR of 10.8%. It adds that from 2023 to 2027, the industry will grow at a slower CAGR of 7.1% and be worth $9.6 billion at the end of the forecast period. Building on this, Future Market Insights shares that magnets held a 30% market share in the industry in 2022 (corroborating the IEA's claim) with neodymium itself commanding a 70% market share during the same year. Some companies that operate in the rare earth industry are Arafura Rare Earths Limited (OTCMKTS:ARAFF), Lynas Rare Earths Limited (OTCMKTS:LYSCF), and Alkane Resources Limited (OTCMKTS:ALKEF).
Moving forward to the world's current favorite mineral, lithium, there is expected to be a serious demand and supply mismatch in the industry. Naturally, this also leads to some high growth estimates for the industry, with a research report from Market.us estimating that the global lithium market was worth $5.2 billion in 2022 and will grow by an 8.9% CAGR between 2023 and 2032 to sit at an estimated $12 billion by the end of the forecast period. The aforementioned demand and supply mismatch is clear when we take a look at the global market for lithium ion batteries, which are used in both electric vehicles and in gadgets. On this front, research from Spherical Insights estimates a whopping 19.3% CAGR between 2020 and 2030 to grow from a value of $65.9 billion in 2021 to a final value of $273.8 billion in 2030. For more on the lithium industry and some cheap stocks, you can take a look at 10 Undervalued Lithium Stocks to Buy Now.
Cycling back (environmentally friendly?) to rare earth metals, management of MP Materials Corp. (NYSE:MP) shared the future trends in the rare earth metals industry during the firm's fourth quarter of 2022 analyst call where they shared:
This is one of the reasons we are so confident in the long-term growth trajectory of our business given the forecast of NdPr demand over the next decade or so are three times today’s output. The challenge of the world producing enough rare earths to keep up with this demand is clearly a favorable indicator for NdPr pricing over time. I note that some of the positive leverage we saw in concentrate realized prices as NdPr prices went higher in recent quarters ended up going in the opposite direction as prices decline. This is in part driven by the variability and the implied discount we have to take in selling an intermediate feedstock to refiners overseas. While this effect will be moved once we are selling our own separated products, it’s important to note that the realized price growth or decline in our concentrate sales over the course of this year as always, will outperform as NdPr market prices rise and generally under-perform as they decline.
With these details in mind, let's take a look at some small-cap mining stocks that aren't finding much love from hedge funds. Some of these are United States Lime & Minerals, Inc. (NASDAQ:USLM), Orla Mining Ltd. (NYSE:ORLA), and Nexa Resources S.A. (NYSE:NEXA).
Our Methodology
To compile our list of small-cap mining companies that are out of favor with hedge funds, we first screened small-cap industrial firms with a market capitalization ranging between $300 billion and $2 billion. These were then manually filtered to include 25 mining companies. Following this, hedge fund sentiment courtesy of Insider Monkey's fourth quarter of 2022 hedge fund survey of 943 hedge funds was generated, and the bottom ten among these are listed below as small-cap mining companies that hedge funds are avoiding.
Small-Cap Mining Stocks Hedge Funds Are Avoiding
10. Fortuna Silver Mines Inc. (NYSE:FSM)
Hedge Fund Investors In Q4 2022: 10
Fortuna Silver Mines Inc. (NYSE:FSM) is a Canadian firm that is headquartered in Vancouver, British Columbia. It mines silver, gold, zinc, gold, and other metals in different countries such as Mexico, Peru, and Argentina.
By the end of last year's fourth quarter, ten of the 943 hedge funds part of Insider Monkey's database had held a stake in Fortuna Silver Mines Inc. (NYSE:FSM). Out of these, the firm's largest investor is Eric Sprott's Sprott Asset Management since it owns 2.1 million shares that are worth $8.2 million.
Fortuna Silver Mines Inc. (NYSE:FSM) joins Orla Mining Ltd. (NYSE:ORLA), United States Lime & Minerals, Inc. (NASDAQ:USLM), and Nexa Resources S.A. (NYSE:NEXA) in our list of mining companies that aren't seeing much love from hedge funds.
9. MAG Silver Corp. (NYSE:MAG)
Hedge Fund Investors In Q4 2022: 9
MAG Silver Corp. (NYSE:MAG) is another Canadian mining company that is headquartered in Vancouver, British Columbia. The firm explores and develops precious silver and gold deposits.
As of Q4 2022, nine of the 943 hedge funds profiled by Insider Monkey had bought the firm's shares. MAG Silver Corp. (NYSE:MAG)'s largest hedge fund investor is Eric Sprott's Sprott Asset Management with an $81 million stake that comes via 5.1 million shares.
8. Endeavour Silver Corp. (NYSE:EXK)
Hedge Fund Investors In Q4 2022: 7
Endeavour Silver Corp. (NYSE:EXK) is yet another Canadian mining company, which also operates out of Vancouver, British Columbia. It mines and processes gold, silver, and other precious metals.
Seven of the 943 hedge funds part of Insider Monkey's database had bought a stake in Endeavour Silver Corp. (NYSE:EXK) during 2022's fourth and final quarter. This indicates that less than 0.1% of the hedge funds part of our database had bought its share, making it a small-cap mining company (the latest market capitalization is $767 million) that hedge funds are avoiding.
Endeavour Silver Corp. (NYSE:EXK)'s largest hedge fund investor is Jim Simons' Renaissance Technologies since it owns 868,100 shares that are worth $2.8 million.
7. Compa?ía de Minas Buenaventura S.A.A. (NYSE:BVN)
Hedge Fund Investors In Q4 2022: 7
Moving out of Canada, Compa?ía de Minas Buenaventura S.A.A. (NYSE:BVN) is a mining company headquartered in Lima, Peru. It produces a variety of metals such as gold, silver, lead, zinc, and copper with facilities primarily located in Peru.
By the end of Q4 2022, seven of the 943 hedge funds surveyed by Insider Monkey had invested in the firm. Compa?ía de Minas Buenaventura S.A.A. (NYSE:BVN)'s largest shareholder is Douglas Harold Hart Polunin's Polunin Capital which owns 4.7 million shares that are worth $35 million.
6. New Found Gold Corp. (NYSE:NFGC)
Hedge Fund Investors In Q4 2022: 6
New Found Gold Corp. (NYSE:NFGC) is based in Vancouver, Canada and it drills to explore gold deposits.
Six of the 943 hedge funds profiled by Insider Monkey had bought New Found Gold Corp. (NYSE:NFGC)'s shares as of December 2022. The largest investor is Robert M. P. Luciano's VGI Partners with a $1.4 million stake.
United States Lime & Minerals, Inc. (NASDAQ:USLM), New Found Gold Corp. (NYSE:NFGC), Orla Mining Ltd. (NYSE:ORLA), and Nexa Resources S.A. (NYSE:NEXA) are some mining companies that hedge funds are avoiding.
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Disclosure: None. 10 Small-Cap Mining Stocks Hedge Funds Are Avoiding is originally published on Insider Monkey.