How’s your portfolio looking in 2019? Do you already own shares and are you planning your next investment? Perhaps you should consider looking to the resource industry, in particular, mining stocks. There is a broad cross-section of companies that produce or explore for iron ore, diamonds, coal, uranium, gold, silver, copper and many other natural resources that are essential for accelerating global infrastructure builds and thus, even though many may label this a cyclical industry, we believe the trend is always up.
Research is essential within this sector, and one must analyze the differences between a major and a minnow miner. Majors have been in business for quite some time. They usually conduct their business on a global scale and have a clear, measurable yearly output with dividends reflecting performance.
On the other hand, you can opt for the latter. These are usually small companies, known as minnows, that haven’t been operating for long but are able to capitalize and monetize the hype surrounding the discovery of a deposit.
This means that investing in them can be a bit risky, but if they manage to find a JORC certified mineral deposit, significant profits in a short period of time are on the table. If you unsure about the resources sector and want an appropriate investing consultation, we recommend looking at a firm, such as Piper Mulligan and their partners Nancy Hui and Bennet Schwartz that can help you on the journey.
Before jumping in the deep end, we recommend a significant amount of due diligence be conducted when choosing a minnow miner as you are probably aware, the mining industry is affected by a large degree of sovereign risk. Because of this, you have to find a company that operates in a politically stable region. Before making an investment, make sure to learn everything there is to know about the property rights and the rule of law of a certain country. Losing a sizable investment in infrastructure in a high-risk country is not uncommon and can be devastating to your investment, so thorough research is essential.
In addition, you should investigate the portfolio diversity of each company. Assumingly, you want to make a long-term investment, but this may not be feasible let alone profitable if the firm has low reserves, or few mines operating towards the end of their lifecycle. Even if you find a company that has a decent track record of solid growth, you should further research if they conduct business in different regions or countries.
This means that they are working on a number of mines throughout the mining lifecycle, from studies through to operations. This is considered hedging your bets and you will not depend on a single mine and probably won’t suffer a terrible loss if an incident was to occur affecting production.
When choosing the location, besides considering the security factors, you should obtain and analyse extensive drill programs and read all the reports. There is no point in investing in a region that is not known to be rich in a certain mineral. Focus your research on already established areas and well-financed mines.
Lastly, consider what commodity you want to invest in. Gold is extremely cherished and has been a stable commodity for centuries. With the China-US trade war on our door step, it could be a smart choice to hold liquidity in gold. But if you want a more speculative profit, why not consider copper? With sizable infrastructure investment still on the horizon and the influx of electric cars inevitable, many experts predict a glut in copper production over the next few years. These commodities are more balanced and their prices don’t change drastically, meaning that they are less risky and aren’t likely to fail.