The FTSE 100 is full of the biggest and best companies based in the UK. By scouring this index, I usually come across a number of interesting firms in which to invest. I think I’ve found two mining businesses that are currently benefiting from high underlying commodity prices.
Between them, Antofagasta (LSE:ANTO) and Glencore (LSE:GLEN) mine copper, iron ore, nickel, and silver, among other metals. With £5k to invest, why am I thinking of adding these two companies to my long-term portfolio? Let’s take a closer look.
A FTSE 100 copper miner
A copper mining firm operating exclusively in Chile, Antofagasta has enjoyed strong historical results. It recorded profit before tax of $3.4bn in 2021, up from $1.8bn in 2017.
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That said, RBC downgraded Antofagasta in March, warning about inflation eating into profit margins. However, I see this as a short-term issue that should subside over time.
In more positive news, the business recently reported that its revenue for 2021 was up 46% year on year. This was helped by realised copper prices throughout the year that were 47% higher than in 2020.
There have been a few reasons why copper prices have climbed.
Firstly, the pandemic impacted mining operations across the world. This led to genuine worry about tightening supply of metals, including copper. The result was that demand outstripped supply and prices rose. The copper price is up 18.23% in the past year, currently trading at $4.84 per ounce.
Another reason for the rise is the use of copper in environmentally-friendly products, like electric vehicles. There could be significant upside potential for copper, and the Antofagasta share price if such developments continue to be ever more important. Antofagasta currently trades at 1,685p, up 0.5% in the past year.
A global firm with strong potential
The second company, Glencore, is a global mining giant. For the year ended June 2021, the firm reported an 84% increase in underlying earnings year on year.
Furthermore, it stated that it will pay £3bn to shareholders. This will probably be in the form of dividends.
Like Antofagasta, it is currently benefiting from higher commodity prices caused by supply fears. Nickel, in particular, has soared in value as the war in Ukraine deepens worries about production in Russia.
A risk going forward, however, is that the market may not be able to sustain these high commodity prices.
Deutsche Bank upgraded Glencore in February as it beat expectations on net debt. This decreased from $15.8bn to $10.6bn between 2020 and 2021.
Its target price increased from 450p to 500p and the stock currently trades at 500p, up 77% in the past year, and I still think there’s more upside potential based on spiralling commodity prices.
Both of these mining companies have reported bumper profits as the price of the underlying commodities they mine rise. While this might not last forever, I think this trend could continue for some time. As a result, I will be using my £5k to buy shares in both businesses soon.
