Things we look for when we recommend mining stocks

19th October 2021

Introduction

Investment can be both potentially unpredictable and rewarding while on the whole rewards usually outweigh the risks. It, however, goes without saying that is makes sense to do your research or due diligence before committing to an investment. Mining stocks are these days a popular investment option and if you are interested then read on for a comprehensive understanding of things to look for when looking for mining stocks investments so that you can make an informed decision.

Are mining stocks a lucrative investment?

Normally, legitimate mining companies such as Rio Tinto have the ability to generate profit, no matter the economic conditions. There will always be movement with mining investments but high quality mining stocks in your collection will be the right move towards receiving dividends. It basically comes down to making informed decisions based on feasibility studies, that will help you avoid the pitfalls of selecting ones that may fail and instead select junior miners that have potential to succeed.

What are the 2 groups of investors?

Mining investors are split into two main groups, namely juniors and seniors. Of the two juniors are the riskier ventures mostly because they deal in commodity explorations. These include minerals, natural gas and oil. Juniors usually do not have much capital nor a long industry history, being a newer company hoping to develop a natural resource.

Seniors are as the name suggests, more mature and less volatile. These ventures have a large portfolio and capital to back with the necessary cash flow to finance explorations. Seniors tend to have decades of history and global operations that supply a steady flow of cash. They have proven success making them easy to evaluate and a trustworthy investment.

Risks and rewards of each

Juniors

When it comes to Juniors the risks are slightly higher with the obvious one being a failure which can leave investors and banks at a loss. However, on the flip side Juniors can be successful and thereby justify a decent premium, which leads to decent returns. Then there are the rarer but very rewarding instances when Juniors find a large mineral deposit that is current market favourite including precious metals. On such occasions Juniors can enjoy major returns within a few days.

Seniors

With Seniors there is the backing of history and number of deposits that give it financial stability. This is why Seniors are not as badly affected by market value changes as a new deposit would be.

Understanding the market

Understanding the market is of course essential prior to making any decisions regarding investments. Below are some areas that should be looked into when contemplating investment.  

Demand and supply – Understanding and predicting which deposits and metals are popular and projected to grow in demand

Current market trends – developing a clear understanding of which stocks are currently trending and show potential for long term future demand such as graphite that is an essential component for electric vehicles and those that always maintain high demand such as iron ore, gold and silver

Types of mining stocks – The choice is vast with some such as gold mining stocks being continuously profitable while others gain importance in the playing field owing to current demands and trends.

Selecting the right mining company for you

Using the below criteria, it will be easier to select the correct mining company stocks for you to buy and to invest in.

  • geographical location, from the country, region etc plays a pivotal role in production costs and the quality of the stocks
  • the business plan is an important consideration as it the foundation for the entire mining operation
  • how their stocks move is another clear indicator about how well the operation is doing and if their stocks are in demand in the current market environment
  • a healthy cashflow can be determined if they have been consistently able to fund projects in the past, even during bad market periods.

Conclusion

For investors and speculators mining is a popular and exciting options offering both high risks and high rewards, especially in the case of juniors. However, there is a thrill and sense of satisfaction watching a stock poised for a big return. With careful research and study, you too can enter the arena with confidence.