Top 10 stocks to watch out for ahead of the critical mineral mines auction

However, when it comes to an investment perspective, people have stark views towards gold. For some, gold is a very polarising topic in the investment community while there are some who swear by it.

Same goes for silver, even after its fascinating properties.

Now, the latest entrant to the list of precious metals is lithium.

Remember the big news from earlier this year when India discovered lithium reserves?

Soon after the discovery was made public, experts put India on the cusp of a revolution as far as electric vehicles (EVs) are concerned.

Reports started circulating that even if India was able to mine 10% of these reserves, it would give the country enough lithium to power around 60 million (m) EVs in India.

EVs are powered by lithium-ion batteries which we currently import from China and Hong Kong. And if the country wants this business to sustain and do well over the long term, it needs to find a cheap and alternative source.

No wonder big conglomerates like the Tatas are pouring huge sums to have a lithium-battery source so they could get their hands directly on these batteries.

Now, there has been tremendous excitement in government circles, the media, and corporate India after this announcement was made.

The government even cleared some hurdles along the way after the discovery so that India could take the next big step.

For example, to ensure more private participation, the government has kept royalties on the cheaper side. India has had one of the highest royalty rates globally because state governments saw this as a major revenue source.

But now with private players also looking a piece of the pie, India has fixed mining royalties at 3% for lithium and niobium. And kept it at just 1% for other rare earth elements. These would encourage private miners.

In July this year, the Indian government changed its mining rules in a bid to boost exploration of some critical minerals like lithium by allowing private miners to search for the materials.

In the latest move, the Indian government is reportedly looking at clearing some more reforms before the critical minerals mining auction.

What used to happen earlier was state governments took a lot of time (as usual) to approve the projects declared in mining auctions.

To speed up the process, the central government has now taken matters into their own hands and decided to conduct auctions themselves.

There were a lot of uncertainties because of delayed clearances too. So now, the government is looking at auctioning select mineral blocks under ‘on-tap’ arrangement with prior clearances. This would ensure faster development and extraction of critical minerals.

As we see more developments on this front, it’s becoming clear that the economic impact of this is probably being underestimated. Not much has been said about the mining megatrend.

But we know that lithium mining is one of the fastest growing sectors in the world. It could go on and created hundreds of thousands of jobs, many millionaires along the way, and help generate billions of rupees in tax revenue.

Mining of critical minerals will continue to become a bigger topic in public market investing, along with a continued essential part of lithium mining’s role to global adoption.

While details are sparse at the moment, we know that the fundamentally strong stocks within this domain would do well once they are awarded some mining sites in the auction.

Keep your eye on this aspect of lithium mining. It appears to be heating up going into the critical minerals auction, which means we should expect large winners shortly.

Lithium and mining stocks, with their robust market growth, could make for a compelling investment opportunity.

The Companies Involved

Mining companies could be the obvious beneficiaries.

Not all mining companies though as lithium is a highly reactive metal. It’s mining and extraction is a very complex process. Investors will have to keep a hawk eye for an announcement by an Indian firm that will take this step.

Rather than just focusing on mining stocks, you could also take a look at companies involved in the extraction process. And some other proxy plays as well.

You should keep a watch on these companies engaged in mining mineral products:

#1 NMDC

In line with the rare mineral race, NMDC has partnered with Australia’s Hancock Prospecting, a company owned by billionaire Gina Rinehart, for lithium and cobalt mining.

Rinehart even had a one-on-one meeting with PM Narendra Modi, when he was on his Australia tour earlier this year.

NMDC and Hancock are already exploring sites for lithium mining in Australia under a comprehensive strategic partnership. Australia is the world’s largest lithium producer, and its lithium industry is more mature than India’s.

Importantly, Australia’s lithium reserves are in the same hard rock form as the deposits in India, and any expertise they get will be an edge.

NMDC has also forayed into coal mining after securing two coal blocks from the government of India.

#2 Coal India

This is an obvious beneficiary. This Maharatna company contributes 80% of the country’s coal production. It supplies more than 80% of its production to the power sector.

In a bold move to diversify its operations and integrate further into the value chain, Coal India is targeting the acquisition of lithium, cobalt, and nickel assets abroad.

The company has recently amended its Memorandum of Association (MoA) to include non-ferrous and critical minerals, indicating its commitment to expanding its presence in new sectors.

#3 GMDC

GMDC is engaged in the mining and producing lignite, bauxite, and fluorspar. The company also has a thermal power plant and a cement plant.

GMDC and Hindustan Copper have also announced their plans this year for mining rare earth metals, obviously with an eye on lithium and cobalt.

The Gujarat state government in June appointed retired bureaucrat Hasmukh Adhia as the GMDC chairman.

#4 Orissa Minerals Development Corp (OMDC)

The company is engaged in the mining and production of iron ore and manganese ore.

In March 2023, the expert appraisal committee of the Environment Ministry recommended for grant of environmental clearance (EC) for Bagiaburu iron ore mines of the company.

OMDC has six iron ore and manganese ore mining leases at Barbil in the district of Keonjhar, Odisha.

Certain mines have remained inactive due to the lack of required statutory clearances. However, the company has undertaken the necessary steps to address these issues and initiate mining activities.

These mines together have an estimated reserve of about 201 m tonnes of iron ore and 27 m tonnes of manganese ore.

#5 MOIL

MOIL is the largest producer of manganese ore in India, with a market share of over 50%. The company has 11 mines in the states of Maharashtra and Madhya Pradesh.

The company plans to partner with Karnataka State Minerals Corporation Limited (KSMCL) to carry out exploratory activities in Karnataka.

The collaboration is expected to benefit both organisations and contribute to the development of the mining sector in the state.

Apart from this, you could see the latest developments pertaining to minerals mining for these companies:

20 Microns

Hindustan Copper

NALCO

NLC India

Ashapura Minechem

Alphageo India

Asian Energy Services

Asi Industries

Bhagyanagar India

Greenearth Resources

HG Industries

Impex Ferro

GOCL Corporation

Please note, these are not recommendations in any way.

The idea is to highlight the companies in advance so you could do your own analysis and track their most recent developments.

These listed companies in the mining ecosystem could benefit as and when there’s development related to mineral mining so you should keep them in your watchlist.

In Conclusion

The hype is surely building up.

The Indian government is reportedly going to start the auction of critical mineral mines in the new few weeks.

The mines secretary was quoted saying “The legal framework has been laid out and the blocks have been identified”.

The tender seeking bids is expected to be out by December and auctions may start three months later. It would be exciting to see how all this pans out.

Given all that we have seen so far, if you have to bet on one company that will be at the top, which one would it be?

Let us know in the comments section below.

Stay tuned and happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com