Investing in a mining company requires sufficient marketplace research as well as a good look into the various levels of investment risk in the industry.
While many investors have seen good return on their investments with junior mining companies, it is worth looking at different sized mining corporations along with the commodities sought, exploration plans, management teams and financial books.
Investors are attracted to top mining companies as the population's demand for certain metals and minerals seemingly continues to exceed the supply. In turn, commodity prices rise and the success of the investment grows.
Before investing in either junior or top mining companies, it is vital to consider the following:
Opportunities for exploration: The exploration process can increase or diminish the financial value of any mining company. Exploration is an extremely intricate and expensive procedure, therefore the equipment, assets and practices of a mining company should be evaluated by a professional prior to any large investment. A mining company that is unable to deal with the exploration phase using strong economical sense can result in financial devastation.
Commodity Supply – Consider how the commodity is valued in the marketplace, how it has been valued in the past and attempt to scope whether it will maintain, lose or gain value in the future. Rare earth elements, for example, are expected to see a massive incline in demand as the world becomes more and more dependent upon them. In turn, determine how common the supply is for the commodity in question.
Resources and Company Fundamentals – Mines and oil are not infinite resources. Each exploration and operation must produce lucrative results. In order to remain sustainable, a company will only maintain a cash flow through successful mining operations.
Prior to investing in either a junior or top mining company, evaluations should be conducted to determine whether the investment is of low risk, medium risk or high risk:
Low Risk: Investing in a majorly developed and long-standing top mining company that will render profit from an inevitable increase in commodity value.
Medium Risk: Investing in a base metal company that only mines for a limited number of commodities, for which the increase in value is merely speculated.
High Risk: Investing in a junior mining company set to embark upon their first exploration or mining operation.
While investing in top mining companies is a low risk venture, there have been patterns indicating that many investors have had much success investing in junior mining companies.
Top mining companies throughout the world are currently exploring new locations to mine for rare earth elements that are becoming increasingly scarcer as China places restrictions on global distribution. Investors are wise to venture with both top and junior mining companies that will be conducting explorations for rare earth elements.