In a notable shift in the mining sector, geopolitical risks are now correlated with a surge in mining stocks, marking a significant departure from the traditional response of the market. For decades, heightened geopolitical tensions typically resulted in sluggish growth expectations and subsequent declines in mining stocks. However, recent analysis from Jefferies suggests that the landscape is changing, with investors now viewing geopolitical instability as a factor that can constrain physical supply rather than a harbinger of reduced demand for raw materials.
The dramatic transformation in perception is underscored by recent market performances. Over the past six months, the S&P 500 has recorded approximately 8% returns, while the US mining sector has experienced remarkable gains of 48%. Internationally, mining stocks have even outperformed that figure with a 57% rise. This marks a historical pivot away from the conventional vulnerability of mining stocks during periods of market volatility brought on by trade wars, military conflicts, and sanctions.
Recent geopolitical events, particularly the war in Ukraine and the implementation of tariffs by the U.S. government, have disrupted global metal flows and strained supply chains. Similarly, escalating tensions in the Middle East have heightened risks related to energy and shipping, while ongoing trade wars, especially between the U.S. and China, have led to export restrictions on critical minerals.
Compounding these issues, tighter environmental regulations in Western nations and resource nationalism movements in regions like Latin America and Africa have further restricted new supply. For instance, the Democratic Republic of Congo, which contributes to about 75% of the global cobalt supply, is emblematic of this emergent trend towards greater control over resources.
As governments pursue strategic goals to secure domestic access to essential metals—particularly those pivotal to defense, energy transitions, and electrical infrastructure—the relationship between geopolitical risk and resource availability has fundamentally altered. According to Jefferies analysts Christopher LaFemina and Giovanni Holmes, geopolitical risk now often signals tighter supply conditions, prompting investors to reconsider their approach to mining stocks as strategic assets that are less susceptible to short-term fluctuations.
In addition to these geopolitical developments, the rise of artificial intelligence (AI) is also impacting demand for metals. Investors are evolving their portfolios, moving away from softer assets like software and real estate toward sectors tied to energy, materials, and physical production. The infrastructure developments required to support the AI boom are driving a demand spike for metals such as copper, steel, aluminum, and gold. AI infrastructure necessitates substantial physical components for data center operations, cooling systems, and electrical transformers, thus placing a firm demand floor within the sector.
Investment giants like Goldman Sachs are indicating a growing preference for industries with high asset value and low obsolescence risk—characterized as HALO businesses. This includes sectors like mining, which are now being valued as integral components of strategic infrastructure essential for AI, defense, and energy capabilities.
With metals like copper and aluminum becoming fundamental to the digital infrastructure and electric grids necessary for modern economic functions, the mining sector is experiencing a renaissance, transforming how investors perceive value in an increasingly complex geopolitical landscape.
