Stock Market Guide: How to Buy Mining Stocks

Mining is an industrial and economic activity that consists of exploration, extraction and processing of minerals. Above all it supports other markets and industries to generate energy or to build components like computers, cosmetics, highways, metallic structures and more.

As with any other market, to succeed you need to do your research to know the companies, their projects and the future perspective.

Junior mining companies

Mining is crucial for our socioeconomic development. It all begins when a junior company discovers a mineral deposit somewhere. As a result of that finding, financing the project is the next step and the most common options are:

  • Finance the project with their own capital – this is a scenario that allows for more profits, but far from a reality for most junior mining companies. High costs lead companies around the world to the stock markets, financing the project by selling shares.
  • Sell their assets – ideally, the assets are sold to major mining companies, which are already capitalized.

Creating jobs and investment opportunities

Normally, those small-sized companies are very agile, with a fast decision-making process that allows them to find, hold and partially develop a number of potential projects, eliminating, with a small cap, the first high-risk stages.

As a result, these companies always represent good opportunities for major companies or big investors, while providing hundreds of jobs.

A story of success

The success stories of junior companies have already crossed borders. Numerous juniors have become billionaires overnight through the discovery of important mineral deposits. Therefore, in these successful cases investors too, received millionaire returns on investments made.

Gradually, the successes of the junior mining companies were so high and overwhelming that the large mining companies, began to be outdone both in the volume of investment in mineral research and in the discovery of new mineral deposits.

Major mining companies

Typically, major mining companies are well-capitalized and have a long history of operations around the world. They offer a slow and steady cash-flow because they have proven methods for exploration and mining.

Major companies are a sum of all their deposits being staked or mined and as very well-established mining companies, they have high-quality reserves. So, the content of a single deposit isn’t expected to influence much of their stock value. The same is not true for junior companies, who depends on the results of feasibility studies that can shoot its value up, or shoot it down, if negative.

If there is no risk, there is no reward

With this information, it’s not difficult to realize where the risks are. If you are looking for a company with lots of potential and you are patient enough to wait for results, consequently junior companies are a good bet to invest your risk capital.

On the other hand, major companies offer lower risks and have more potential for returns and appreciation. However, both stocks follow a business model based on using up all the resources they own in the ground.

The best of both worlds

Good news is that you can have the best of both worlds. If you don’t feel like picking individual stocks remember that there are several mining-related ETF’s and mutual funds that can be added to your portfolio.

Research and knowing the market

Stay on top of your game, know new investment opportunities in the mining market by subscribing to BTV’s newsletter. Also, check out the BTV episode where we head up to Canada’s Yukon for a special episode on this thriving mining community.