The world’s biggest mining companies are both blessed and cursed. They are blessed because most of them produce the commodities – copper, nickel, cobalt, among others – that are essential for the transition to the “clean” economy.
They are cursed because most of these same companies also produce the commodities – coal, oil, iron ore – that are warming the planet and falling out of favour with investors who increasingly view their portfolios through the lens of environmental, social and governance (ESG) standards.
So far, the cursed side is winning, with the Big Five mining companies trading at low valuations, generally 2½ to four times enterprise value (debt and equity) to EBITDA (earnings before interest, taxes, depreciation and amortization).
Tesla Inc., the electric-car company that uses many of the “clean” metals produced by mining companies – as well as some dirty ones – trades at 70 times, partly because chief executive Elon Musk’s battery-powered machines are seen as part of the solution to a warming planet and are beloved by ESG investors, whereas mining companies are seen as part of the problem and increasingly shunned by them.
The S&P 500 trades at 15 times EV/EBITDA – three times greater than that of the Big Five. Their plight is made worse by the extreme difficulty of reducing, and eventually eliminating, Scope 3 emissions.
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