Investing in mining stocks on the Australian Stock Exchange (ASX) can offer significant opportunities for portfolio diversification and exposure to various commodity markets. The mining sector is a cornerstone of the global economy, providing essential raw materials for numerous industries, from construction to technology. As the demand for these materials continues to rise, driven by technological advancements and the transition to green energy, the performance of mining stocks becomes increasingly relevant for investors seeking growth and stability.

The World Bank’s metals and minerals price index rose by an estimated 9% in April 2024 every month, after a relatively stable quarter. Recent price increases are driven by positive sentiment about strong demand, concerns about supply, and disruptions for some key metals. In this article, we look at three stocks in the Australian stock exchange based on market capitalisation in the mining sector and outline their activities and state the advantages of purchasing mining shares. 

How is the Largest Mining Stocks Performing on the ASX

BHP (ASX: RIO)

Given that it is the biggest mining business in the world right now and the largest on the ASX in terms of market capitalisation ($174.29B) and deserves the top rank in our list.  In addition to being the world's biggest nickel and copper producer, BHP is the world's second-largest iron ore producer, trailing only Brazil's Vale SA. Iron ore accounted for little more than 45% of BHP's revenue in the first half of FY23, with notable contributions from coal and copper. Because of this, investors looking for a low-risk way to invest in the commodities markets could choose BHP. Purchasing BHP stock gives you access to several commodities markets in a single trade due to the company's extensive global portfolio of premium mining assets.

Fortescue (ASX: FMG)

The largest pure-play iron ore firm on the ASX, Fortescue is largely investing in hydrogen projects as part of its expanding worldwide green energy sector. Fortescue is an obvious alternative for those who are just looking to gain exposure to the iron ore market. Currently trading on the ASX, it is the largest pure-play iron ore business. It has extensive mining projects located in Western Australia's Pilbara area. Fortescue's share price typically moves in lockstep with the price of iron ore since, unlike BHP, it does not have a broad portfolio of mining assets. 

For investors who are optimistic about iron ore's long-term prospects, this is excellent news. However, the fact that it is dependent on the performance of the iron ore market makes it a riskier investment. If you are more risk-averse or want exposure to a portfolio of industrial or precious metal commodities, BHP or Rio Tinto might be a better choice.

Still, Fortescue has expanded its operations outside iron ore mining. It currently has a significant investment in Fortescue Future Industries (FFI), its global green energy company, which operates in 25 countries. It is dedicated to two goals: decarbonising Fortescue's mining operations and developing a global portfolio of hydrogen, geothermal, solar, and wind projects.  

Rio Tinto (ASX: RIO)

Due to its dual listing, it has the second-largest worldwide market capitalisation of any mining corporation in the world, behind BHP. Rio Tinto is a mining stock that is listed on the London Stock Exchange, the New York Stock Exchange, and the ASX. After BHP, it is the second-biggest mining firm globally in terms of worldwide market capitalisation. Rio has a diverse portfolio and the majority of its revenue is derived from its substantial iron ore holdings. In addition, it generates diamonds, copper, aluminum, and other minerals.

Similar to BHP, Rio exposes investors to a variety of commodities markets for metals and minerals. This feature, as we just covered, may make investing in Rio Tinto less prone to risks than in a business like Fortescue, whose income is dependent on the price of iron ore. The price of Fortescue's shares is probably going to drop if the price of iron ore drops dramatically. Nonetheless, miners such as Rio make some money from resources other than iron ore, so the value of their stock might hold up better.

Benefits of Investing in the Purchase of Mining Shares

1. As one of the oldest sectors in the world and a contributor to the improvements in civilisation (steam engine, electronics, etc), mining is a vital component of the global economy. Numerous contemporary technologies that we depend on in our daily lives would not exist without metals and minerals.
2. It generates necessary resources: Miners generate the raw materials needed by practically all other economic sectors. For instance, aluminum is needed to make airplanes, steel is essential to the manufacturing and construction sectors, and copper is one of the main components of renewable energy systems like wind turbines.
3. The exposure to many commodity markets that mining shares offer can help diversify your portfolio, making them excellent diversifiers. This implies that their return can differ from those of other ASX shares. 

Investing in mining shares can be a strategic move for those looking to diversify their portfolios and gain exposure to multiple commodity markets. The mining sector's role in providing essential raw materials for various industries underscores its importance in the global economy. As demand for these materials grows, driven by technological advancements and the push for green energy, the potential for growth in mining stocks remains strong.

The decision to invest in mining stocks should be informed by an understanding of each company's market position, diversification strategy, and future growth prospects. Whether you are drawn to BHP's extensive portfolio, Fortescue's focus on green energy, or Rio Tinto's diversified mineral production, each offers unique advantages and potential risks. By carefully considering these factors, investors can make informed decisions that align with their financial goals and risk tolerance.