Money Peak: Basic Materials Sector Report

August 20 - August 27, 2025

This week, the basic materials sector demonstrated a remarkable recovery with a 1.14% increase, outperforming the broader market, highlighting the continued strength in challenging economic conditions. Leading companies in the sector are adapting their strategies to cope with price fluctuations, trade tensions, and ongoing demand from emerging markets.

🌍 Market Situation & Overview

The basic materials sector continues to show resilience amid mixed global economic signals. Notably, gold producers are benefiting from rising precious metal prices, while iron ore companies face moderate pricing pressure and weaker demand from China.

The sector's performance of +1.14% this week outpaced other major sectors and was only slightly outdone by the utilities sector (+1.18%). This positive trend reflects both favorable pricing dynamics for certain raw materials and the successful cost reduction and efficiency improvements by leading companies.

📊 Leading Companies in Focus

Newmont Corporation

Newmont continues its impressive upward trend, reaching a new 52-week high at $72.79 this week. With a 1.87% increase this week and a remarkable 85% year-to-date gain, the world's largest gold producer benefits from several positive factors:

• Consistent debt repayment – $1.4 billion since the start of 2025 – significantly strengthens the balance sheet
• Improved gross margins of 41.8% and an impressive P/E ratio of 13.12 underscore operational strength
• The stable dividend yield of 1.38% offers investors a reliable income stream

Current analyst assessments remain predominantly positive, though some experts advise increased caution due to strong share price gains, downgrading from "Strong Buy" to "Buy."

BHP Group

The diversified mining giant BHP posted a slight decline of 0.22% to $55.65 this week. The latest financial results for fiscal year 2025 present a mixed picture:

• Lower profit and revenue numbers due to weaker iron ore prices despite record production in iron ore and copper
• A higher than expected dividend of $0.60 per share (totaling $3 billion), representing a payout ratio of 60%
• CEO Mike Henry warned of a "mixed" global economic outlook but still anticipates robust commodity demand in Asia

The strategic focus on forward-looking metals like copper and nickel positions BHP well for long-term growth despite short-term challenges from tariff policies and geopolitical tensions.

Rio Tinto

Rio Tinto experienced a slight decline of 0.61% to $61.95, notwithstanding a strategic shift towards broader commodity diversification. Notable developments:

• Investment of $180 million in the Norman Creek project to secure the long-term future of bauxite operations on the Cape York Peninsula in Queensland
• A 6% production increase year-on-year (measured in copper equivalents) underscores the successful diversification strategy
• With a dividend yield of 6.25%, Rio Tinto remains an attractive investment for income-oriented investors

Valuation metrics, including a P/E ratio of 9.86 and a price-to-book ratio of 1.81, suggest the stock may still be undervalued despite recent positive developments.

Freeport-McMoRan

Freeport-McMoRan, a leading copper producer, recorded an impressive gain of 1.51% to $44.35. The company benefits from the rising demand for copper amidst the global energy transition:

• Declining net cash costs per pound in the second quarter of 2025 indicate improved operational efficiency
• Morgan Stanley upgraded the stock to "Overweight," projecting that Freeport could benefit from the new copper tariffs
• Despite a relatively high P/E ratio of 33.6, the strong operational cash flow margin of 25.5% points to solid business development

The current stock performance – nearly a 40% increase over the past four months – reflects growing investor confidence in Freeport's positioning as a key supplier for electrification and the energy transition.

Vale S.A.

The Brazilian mining conglomerate Vale saw a slight uptick of 0.49% to $10.22. The company is undergoing a significant transformation:

• Strategic shift in commercial strategy led to an 8% revenue increase in the last quarter despite falling iron ore prices
• Iron ore production costs decreased for the fourth consecutive quarter, highlighting improved efficiency
• Positive analyst assessments, including an "Outperform" rating from Itaú BBA with a price target of 70 R$ (Brazilian Reais) by the end of 2026

With a P/E ratio of 8.38 and a robust dividend yield, Vale stands out as one of the most valuable companies in the basic materials sector, though it faces challenges from legal risks related to the Brumadinho dam collapse, for which a $1.4 billion settlement was offered jointly with BHP.

🔍 Industry Trends & Developments

Precious Metals Continue Ascent

Gold continues to hit new highs, driving the stock prices of producers upward. This trend is supported by several factors:

• Continued strong demand from central banks, particularly from emerging markets looking to diversify their reserves
• Geopolitical tensions and uncertainties push investors towards safe havens
• Expectations of interest rate cuts in the US increase the attractiveness of gold as a non-interest-bearing investment

Gold mining companies like Newmont effectively utilize higher prices to strengthen their balance sheets and reduce debt, bolstering their financial stability for future market volatility.

Copper Benefits from Energy Transition and New Tariff Policy

Copper prices remain resilient, supported by:

• Growing demand from global electrification and renewable energy sources
• Potential benefits for US-based producers like Freeport-McMoRan through new import tariffs
• Long-term supply concerns due to insufficient investments in new mines

Experts predict the copper market may face a structural deficit in the coming years, which could drive prices higher.

Iron Ore Under Pressure from China's Real Estate Sector

Iron ore producers like BHP, Rio Tinto, and Vale face ongoing challenges:

• Weaker demand from the Chinese real estate sector pressures prices
• Concerns over oversupply due to rising production volumes
• Diversification strategies are becoming increasingly important to reduce dependence on iron ore

Despite these challenges, major producers have proven they can remain profitable through efficient cost management and strategic portfolio adjustments.

🔮 Outlook & Perspectives

The basic materials sector is facing a mixed but overall constructive outlook for the remainder of 2025. Key factors that will influence development include:

• The evolution of US monetary policy and its impact on the US dollar, which traditionally inversely correlates with commodity prices
• The recovery of China's economy and potential new stimulus measures
• Geopolitical tensions and their effects on global supply chains
• Advances in the energy transition that drive demand for critical metals like copper, nickel, and lithium

Companies with diversified portfolios and engagement in future-oriented metals are likely to be better positioned to benefit from long-term growth trends.

💡 Recommendations for Investors

1. Build Exposure to Gold and Precious Metals: The ongoing strength in gold prices and improved operational efficiency of companies like Newmont offer attractive opportunities for defensive investors. Adding gold mining stocks can serve as a hedge against market volatility and inflation.

2. Focus on Cost Leaders and Balance Sheet Strength: In an environment with mixed commodity prices, companies with low production costs and strong balance sheets are better positioned to weather market volatility. BHP and Rio Tinto, with their healthy dividend yields and diversified portfolios, offer interesting opportunities.

3. Invest in Companies with a Focus on Future Metals: Copper, nickel, and other metals critical for the energy transition are likely to benefit long-term from structural demand trends. Freeport-McMoRan, with its focus on copper, could disproportionately benefit from this development.

4. Risk Management Through Diversification: The basic materials sector is known for its volatility. Broad diversification across various commodities and geographical regions can help minimize company-specific and country-specific risks.

5. Pay Attention to Dividend Quality: Many basic materials companies offer attractive dividend yields, but not all payouts are equally sustainable. Companies like Rio Tinto, with a clear payout policy (60% payout ratio) and strong free cash flow, offer more security for income-oriented investors.

Disclaimer: The information contained in this report is for informational purposes only and does not constitute personalized investment advice. Investment decisions should be made taking into account personal risk tolerance and after careful research.