Mining stocks are a hot commodity for those seeking stable investment options. The history of mining dates back centuries, and this industry is not going anywhere.
However, just like everything on the stock market, breaking into this niche can be difficult, and ups and downs in the market are expected. But here are our top six tips for investing in mining stocks.
1. Know the Stocks
First, we recommend learning as much about investments in this industry as possible.
Typically, the stocks can be broken into two categories:
- Majors. The majors are mining companies that have existed for many years and operate on a global scale. Their methods are proven to work and their output is consistent year to year.
- Juniors. Juniors are from smaller companies that take a riskier approach to mining. Investing in junior stocks means you run the same risk as the company. If the smaller company hits a big mineable mineral deposit, you can expect huge returns. If they don’t, you will feel the effects of that too.
Overall, we recommend diversifying between well-established companies and the risky payout.
2. Avoid the Hype
Next, you should avoid the hype. With minerals, you may be drawn to shiny gold at unsustainable prices due to hype about the underlying commodity. Instead, your attention should be on reasonably priced stocks from favorable geological areas. According to this manufacturer for mineral processing plants, minerals like limestones and granite will yield good results — which is reflected in their stock.
For example, copper stocks will generally earn more dividend yields than gold because of stable pricing and steady demand. Copper stocks are usually cheaper than gold stocks, too, resulting in lower risk and stable payout.
3. Broad Base
As mentioned before, major companies operate on a global scale. Generally, it is advisable to invest in a company with a broad operational base. This means the stock will not rise or fall based on one mine in one area. Instead, you can see results from mining all over the world.
These broad bases are also likely to mine multiple mineral types, which allows you to see profits from multiple industries.
4. Longevity in Reserves
When looking at any resource stock, you want to investigate how long the reserves will last. Low reserves require consistent success in exploration to ensure maximum production. This is not a guaranteed success. Instead, you want strong reserves with low production costs. These mining projects will have a strong production base and won’t be relying solely on the success of new ventures.
5. Consider the Geology
While companies may promise big payouts and success in a new location, mining is contingent on geology. If the geology is inhospitable to mining, it is not a good investment. Just because the company takes a risk does not mean you have to. When looking at hostile environments, like the deep Arctic, look at the history of mining and mineral showings in that area and the success of past drill programs.
6. Mine Financing
Now, junior mines can still be a good risk to take. A good indication that the risk will reap a reward is the financing behind the mine. Well-financed stocks with no need to sell at low prices show investors’ have a strong interest. Generally, junior mines have major investors behind them who pay for drilling, exploration, and development. As investors, this step will be taken because they feel this mine is likely to succeed.
The Bottom Line
Mining stocks can be volatile, but they are often excellent long-term investments. These stocks grow with the mining industry and have maintained a solid, steady presence on the stock market for decades.
If you are not a mining expert, look to those who are. Investors and manufacturers for mineral processing plants had to be swayed into investing in the mine. Typically, they do this because there is something worth investing in. If the experts are on board, you should consider adding that stock to your portfolio.