It is rather obvious to the most of people that mining is a huge business. Why not to invest in it? There are some serious environmental issues causing heated discussions in the topic of mining as our planet’s bug enemy, but still it is the important root of many commercial products which often have elements that used to be hidden deep under the ground. In the article below we provide some basic information for those who think of investing in mining.
Two groups of mining stocks
There are two groups of mining stocks –majors and juniors. The group of majors includes the settled companies, with a long history, slow, steady cash flow and stability on the market. These are like huge oil companies. The reserves in such majors are proven which makes them “safe” and easier in terms of investing.
The juniors are, we may say, the opposite of the majors. Thus, you can expect a short history and experience, fluctuating and not high capital and big profits mostly in the sphere of hopes. What can happen in the case of juniors? Starting from the darkest scenario – failure. The consequence is of course unfortunate, and brings the loss for investors and banks. Another scenario is more optimistic. A junior can be successful enough to provide satisfying returns. And the best option: a junior can find a big seam of mineral which is highly desirable in the market and it makes the junior earn a fortune in a very short amount of time as much as a major would gain in years.
The value of junior and major mining stocks
While both juniors and majors are different, they have similar business models. They are based on how much of this useful and valuable material they have under the ground to make money on. The problem is that nobody knows how much is hidden under the earth before it is taken out. That is why, mining stocks’ value is just the result of the market value of the company’s reserves – those with a longer experience and previous successes are valued better. The reserves are estimated by feasibility studies. This kind of study gathers size and grade of the company’s deposit and calculates it with the costs and troubles of its extraction. When the gain is higher than costs, the deposit is considered feasible.
Risky or not?
The biggest risk concerns mainly the juniors. It is the feasibility study which determines the junior company’s value. Junior miners often sell their deposits (or themselves) to large miners and look for another deposit. Thus, it turns out that the juniors are often the “fuel” for the majors. A major provides a more stable option. These are mostly market changes of certain minerals’ values which have the biggest influence on the majors. As a major’s owns many deposits, a single one is not going to change the stock value drastically.
Which option is better?
The answers is not very obvious because it depends on your individual preferences. If you look for something more risky, but probably with more reward, and you have the risk capital to invest, you can choose the junior option. Yet if your investment capital consists of your security money, you would probably prefer something safer, so you can choose the major option. You can still gain some decent reward, but with a lower risk at the same time.
In general, before you start investing look for more detailed information and do some research so that you could invest your money with more awareness and necessary knowledge, and to avoid failures.