Be prepared to dig if you want to invest in mining
Information on mining stocks seems to be available all over the internet; including technical reports, newsletters and PowerPoint presentations. How do you know where to start or what to believe?
How Mining Projects Work
It is best to start with a little basic information about the industry.
Early-stage mining or exploration companies are risky investments, like many other early stage companies in other sectors—are. It can a number of years and cost tens of millions of dollars to find out if that “promising land package” has mineral resources, known as a deposit, on it. Few discovered mineral deposits become producing mines. Be aware, most exploration projects never get past this stage.
It can take many more years and millions of dollars to “prove-up” a mineral resource. This involves conducting additional sampling, creating detailed engineering/geologic studies, obtaining permits, and constructing an actual mine before anything ever leaves the ground, let alone a cash flow or return is generated.
The Risks of Mining Investments
While the potential for substantial gain from mining investments exists, it comes with many risks of failure. The risks may be geological, financial, based on engineering and infrastructure, and even subject to community opposition depending where mineral projects are located. When mineral projects fail or are abandoned, investors may be left with securities that have little or no value.
If you are interested in exploration/mining stocks, you have to know the risks that are tied to any potential reward.
It is wise to seek help understanding the technical reports that Canadian regulators require from mining companies at key milestones in any mineral project’s development. These technical reports, commonly referred to as NI 43-101 reports, are filed on SEDAR for public viewing at no cost. NI 43-101 reports can be detailed, highly complex documents, and are not always written with the average investor in mind.
The burden is on the investor to conduct due diligence. As with any investment opportunity, it can be helpful to speak about a mining investment with a trusted independent professional. A registered investment advisor, geologist, lawyer, or accountant can help decide if the investment is right for you.
Where to Learn More About Mining Investments
There are many sources that may help you understand the stages and risks of investing in exploration and mining. If you are prepared to spend some time learning about mining with an eye to investment, dig into the following resources:
- AME, the Association for Mineral Exploration, provides a brief flyer on the Mineral Exploration Life Cycle
- Investopedia.com provides a series of web articles about investing in mining, including A Beginner’s Guide to Mining Stocks. There are many other articles on Investopedia that offer to teach or explain how investing works in general.
- If you’re interested in geology and mining, consider taking one of many courses at a local post-secondary institution; many offer online programs.