How to Profit from India's Mining Supercycle

Sep 19, 2023

The 'Pick and Shovel' Companies in the Mining Supercycle

Editor’s note: Our smallcap stocks editor, Richa Agarwal, has correctly identified an upcoming mining supercycle in India. These supercycles can be very profitable if you invest in the right stocks. Richa shared her thoughts in this article. Read on...

I have shared this story with my readers many times.

Never has it been so contextual.

In 1848, James W Marshall, while building a sawmill, saw some shiny flakes in a river. When put under further examination, it was found to be gold.

The secret could not be kept for long. As the news leaked, people from all corners of the globe rushed to make money. It was the California gold rush.

About 300,000 people flocked to the state. A small settlement turned into a booming town.

The state's constitution was written. Schools, churches, and roads were built. The early gold seekers made money. The ones who were late had to be content with modest gains. Some even lost money.

But here's the most interesting aspect of California gold rush.

The merchants made more money than the miners. Samuel Brannan, the first guy to get rich from the rush, was not a miner. He was an enterprising retailer with a keen eye for profit. He foresaw the real opportunity...and it wasn't in mining for gold.

Instead, he supplied the picks and shovels miners use to find gold. Over time, he cornered the mining equipment market and emerged as one the biggest beneficiaries of the California gold rush.

Another gold rush merchant was Levi Strauss. Initially in the dry goods business, Levi Strauss responded to the gold-rush need for tough miner's clothes.

He used denim and had it dyed in uniform indigo. Rivets were provided to keep pants in place. The new pants were cheap and lasted. By the 1860s, Levi Strauss' blue pants were daily wear for miners and farmers and cattlemen throughout the western US.

You may not have been aware of the history of the gold rush but I'm sure you are familiar with Levi's blue jeans.

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So why is this story so contextual today?

Well, the wheels have been set in motion for a mining supercycle.

You see, last month, the Parliament passed an important bill that could influence the fortunes of companies catering to mining ecosystem.

The new Mines and Minerals (Development & Regulation) Amendment Bill allows private companies to mine six out of twelve atomic minerals. These include lithium, and deep-seated minerals such as gold and silver.

Some of these minerals could make the clean energy dream come true in our future. They will be the key for India to make the country an electronics hub and enabler for "Make in India" push.

These minerals have high economic importance and considerable supply risk due to geo-political uncertainties.

There has not been much exploration or mining of these minerals due to existing legal provisions. Currently, the country is dependent on imports for most of these important minerals.

Over the years, this bill could reduce India's dependence on imports for supply of critical minerals.

After all, these are critical for uses in the space industry, electronics, technology and communications, energy sector, electric batteries, and more.

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The bill brings in major reforms in the mining sector - exploration license for deep seated and critical minerals, exclusive auction of mineral concessions for critical minerals, and revenues from these will also accrue to state governments.

So far, the mining has been mainly dominated by public sector leading to limited activity. The bill will allow private companies in the sector.

A lot of activities related to mining, excavation, and exploration earlier that were prohibited will now be allowed.

The critical minerals identified include lithium, beryllium, titanium, niobium, tantalum, and zirconium. Do note that Lithium, cobalt, and nickel are some of the critical minerals for EV story to take off.

The good thing is that huge deposits of Li have been identified in J&K and Rajasthan.

India does not mine any of these locally yet. But this may change soon.

You see Coal India, GMDC, Hindustan Copper, NALCO, MOIL, OMDC, NMDC, and the likes.

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Today, I want to highlight some lesser-known listed companies in the mining ecosystem that could benefit from this development.

To put it simply, these companies could be the picks and shovel suppliers that could enable the mining gold rush. These are the stocks you should consider for your watchlist if you are interested in mining supercycle.

So, let's get to these players now based on the stage they could cater to.

The first aspect of value chain is seismic data services. This involves collection and interpretation of seismic data with the purpose of creating a 2D or 3D image of earth subterrain. It is used by oil and gas and mining companies for exploration and drilling.

A major player in India in this regard is Alphageo India. So far, the company has majorly catered to servicing the hydrocarbon industries or oil and gas sector.

But in fulfilling the quest for digging critical minerals, it could play a critical role. Asian Energy Services also offers seismic services.

Coming to the next stage...

Extracting and mining activity involves the use of detonators and explosives.

GOCL Corp, a part of Hinduja Group comes into picture here. It makes and sells bulk explosives, in India and export markets.

The sectors it caters to include lubricants, real estate, wind energy, food chemicals, pharmaceuticals, and mining. Currently, mining is a small part of its revenue. But that could change.

Fourth on the list is Premier Explosives. It makes industrial explosives and detonators catering to defense, aerospace, and mining industry.

Fifth is Solar Industries. It's one of the leading global makers of bulk explosives with 24% market share in explosive industry, packaged explosives and initiating systems.

These are used in in mining, construction and infra sector. The company also caters to the defence sector.

Now mining is an activity that requires excavation and use of earth moving equipments.

BEML caters to this need not just for mining, but construction, defense, and railways as well.

Now that we are on the aspect of movement in mining industry, sixth on this list is International Conveyors Ltd.

It makes and sells solid woven PVC covered conveyor belts. These belts are used in underground mines for mineral transportation and are suited to transport any large volume material.

A huge share of its revenue comes from international markets as domestic mining so far has been focused on surface-based extraction.

However, with the recent bill focusing on deep seated minerals, there could be an opportunity for the company.

The last on my list is Cyient Ltd.

It already works with some of the world's largest mining companies and OEMs in plant engineering, asset management, geoscience data management, extensive geologic data compilation, geospatial data compilation.

Do note that these are very early stages to declare the winners and losers from this development.

Don't consider any of these as stock recommendations.

But it would indeed be good to keep a track on how, if at all, these companies make use of this opportunity. So, keep these stocks on your watchlist for mining supercycle.

If you are interested in such updates, do subscribe to Profit Hunter.

Warm regards,

Richa Agarwal
Richa Agarwal
Editor and Research Analyst, Hidden Treasure

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