Two UK Energy & Minings Stocks to Watch

The global transition to renewable energy sources is expected to increase demand for raw materials extracted by the mining sector. Specific UK energy and mining companies appear well-positioned to capitalise on evolving market dynamics.

Geopolitics versus Climate Change

The London Stock Exchange (LSE) hosts some of the world's largest mining and energy companies, placing it at the forefront for investors monitoring opportunities arising from the intersection of these sectors. Discussions at the recent World Economic Forum (WEF) emphasised the importance of decarbonisation, concurrent with renewed threats to energy security from attacks on vessels transiting the Red Sea. However, expanding renewable technologies will heighten dependence on rare earth elements, the production of which remains almost entirely Chinese-controlled, raising additional geopolitical concerns as Europe and other nations diversify energy supply chains.

In the current environment, select companies can better leverage shifts in commercial and policy landscapes. Near term, disruptions caused by Houthi strikes on Red Sea shipping have compelled one major European liquefied natural gas (LNG) supplier to transport cargoes via the longer route around Africa. This may provide an advantage to organisations sourcing liquefied natural gas across the Atlantic, a region with greater geopolitical stability. In the UK, Centrica - the parent company of British Gas - appears favourably positioned, having secured long-term liquefied natural gas supplies from US-headquartered Delfin LNG. This mitigates Centrica's reliance on imports transiting areas prone to geopolitical uncertainty, such as the Strait of Malacca, where Malaysia has restricted transit to apply pressure regarding the Israel/Palestine conflict.

Financial Impact on Certain Stocks

Prior to the recent disruption in the Red Sea, Centrica had already reported that its adjusted earnings per share for the first half of 2023 more than doubled to 25.8p, compared to 11p in the previous year. This was despite the cost-of-living crisis impacting the UK and surging natural gas prices across Europe during winter. Centrica will announce its full-year financial results in mid-November, which will provide further insight into the company's performance throughout 2023.

On a longer scale, a UK firm that could benefit from current dynamics is Anglo-American. While it is primarily recognised as a platinum producer, its share price has declined over 30% in the past year due to waning demand from China. However, the ongoing transition towards renewable energy solutions will likely drive increased copper requirements, especially those sourced internationally from more geopolitically stable regions. In 2022, Anglo-American commenced copper extraction at its newly developed Quellaveco mine in Peru. The site is projected to yield approximately 300K tonnes of copper annually. The company may see a further improvement should demand from China strengthen, following indications of uneven recovery in the nation during the fourth quarter of the previous year.

Centrica in Handle of C&H Pattern

Centrica's share price has bottomed out at 28p in 2020, with the bullish trend commencing since receiving rejection at 175p last September. A breakout above the local resistance could confirm a completed cup-and-handle pattern projected to hit at least 213p. Without maintaining prices above 137p, the risk towards 123p will remain high, with further corrections towards 100p reducing the chances of a C&H pattern dramatically.

SpreadEx / Centrica

Key Takeaways

The global shift towards renewable energy is increasing demand for mining resources, creating opportunities for UK energy and mining companies. The intersection of geopolitics and climate change is an essential factor to consider, as Europe seeks to diversify energy supply chains while relying on rare earth elements controlled by China. Centrica, the parent company of British Gas, is favourably positioned with long-term liquefied natural gas supplies from the US, mitigating geopolitical uncertainties. Prior to recent disruptions, Centrica reported strong earnings growth. Anglo-Americans, known for platinum production, may benefit from the transition to renewable energy and increased copper demand. Their newly developed copper mine in Peru could contribute to improved performance.