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Guide to Investing in Mineral Exploration and Mining in British Columbia

Before you invest in securities of an exploration or mining company, you should consider the financial risks involved.

Before you invest in securities of an exploration or mining company, you should consider the financial risks involved, and discuss the investment you are considering with a registered investment professional.

In this article, we provide a high-level view of the industry, including types of investments in both mineral exploration and mining companies.

Factors that can Affect the Viability of a Mine

British Columbia has rich reserves of minerals, including copper, gold, silver, lead, molybdenum, coal, and zinc.

Investment opportunities in the mining industry reflect these diverse mineral deposits. Companies large and small explore or prospect potential sites, develop infrastructure, and operate mines.

The viability of a mineral deposit depends on many variables, and there are risks associated with changes to any of  these variables including, but not limited to:

  • Location
  • Local, national, and international commodity prices
  • Demand for commodities
  • Available labour force
  • Available technology
  • Infrastructure (including transportation and power availability)
  • Local and global political environment
  • Ability to raise capital

A change to any one of these variables may slow or halt mining activities, which would have an effect on the value of the securities of the mining company. As a result, there is a high risk that investors could incur significant financial losses when investing in mining companies.

Understanding the Industry

Exploration and mining are established and structured industries. Junior mining companies largely focus on prospecting and exploration; senior mining companies (also referred to as “majors”) largely focus on building mines and extracting metals and minerals of value.

Prospecting and Exploration

Minerals are a finite resource. Existing mines will not last forever. Therefore both junior and senior companies are always exploring for new, viable mineral deposits.

There are generally two kinds of mineral exploration referred to as “greenfields” exploration and “brownfields” exploration.

  • Greenfields exploration happens in undeveloped regions, often far from other mines and infrastructure. This process is lengthy and investors need to be aware of the high risk associated with prospecting in uncharted territory and the unlikeliness of making a new discovery. There is a chance the company will not find a suitable mineral deposit to provide a return on the initial investment.
  • Brownfields exploration happens close to an existing mine or mineral deposit. Often locations near an existing mine or deposits have a higher probability of holding similar minerals and metals. However, the existence of a nearby deposit does not guarantee another deposit will be found.

Investing in any exploration-staged company is a high-risk investment. The lengthy and expensive search process requires a lot of upfront money with no guarantee of a return. To offset risk and fund these lengthy undertakings, companies may choose to raise capital. Selling securities through public and private offerings is one way both junior and senior companies raise capital.

Even if an exploration area shows potential, further exploration and engineering work may reveal the site does not contain enough of the metal or mineral sought to ever be profitable. No one can promise you a guaranteed return on your investment, and a mining investment cannot be guaranteed by any organization.

Development and Operation of a Mine

The building and development of a mine is expensive. At this stage, more in-depth engineering studies are done to verify the deposit’s size, economic and technical viability, and environmental impact of operations. Negative results from any of these many studies could end the project. If engineering studies validate the existence and economic viability of the mineral deposit, the company may decide to build infrastructure to allow a mine to be put into operation.

During the operational stage of a mine, material is removed from the ground. That material is then processed to extract the valuable metals and/or minerals.

External variables such as commodity prices can play an important role in determining the success of a mine. For example, extraction of large mineral deposit may be unfeasible if demand for the mineral and/or the price drops. A company may decide to close a mine because of low commodity prices, and then reopen the mine when prices recover.

What are Junior Mining Stocks?

The term “junior mining stocks” refers to shares in junior (small or smaller) mineral exploration or mining companies. These companies are a crucial part of the industry as they usually focus on exploration of new mineral deposits. However, there is no guarantee shares of a junior mining company will generate any value for an investor.

Junior mining stocks are usually less expensive to buy than senior mining company stocks. This may be because junior mining companies are smaller entities, often focused only on greenfields exploration, and in some cases do not have properties with mineral resources or minerals reserves.

Once a mineral deposit has been defined, studied, and proven to be economically viable, most junior mining companies try to sell the deposit to a senior mining company rather than decide to operate a mine.

Risks with junior mining investments include:

  • Running out of capital
  • Failing to find a viable deposit
  • Changes to commodity prices

Junior mining company stocks can lose significant value because of these risks.

What are Senior Mining Stocks?

Senior mining companies focus on mine development and operation. They often also invest in exploration or in junior mining companies.

Senior mining companies may purchase the rights to known unmined or partially mined mineral deposits from junior companies or other stakeholders in order to develop mining infrastructure and oversee mining operations. These companies may have diversified portfolios with shares in many (smaller) companies with local and/or international operations to strengthen their businesses. Annual reports of senior mining companies contain information about projected production costs and estimates of financial returns.

Even though senior mining companies are more established than their junior counterparts, there are still risks you need to consider when investing in these companies, including:

  • Lack of diversification
  • Lack of capital/liquidity
  • Local, national, and international commodity prices
  • Available labour force
  • Local and global political environment

Explore Mining Investments with an Independent Expert

No person or organization can promise a risk-free return on an investment, in mining or any industry. There is always risk that you will lose money.

The mining industry is continually at the mercy of global markets. Mining company valuations and commodity prices can change without notice.

Consider consulting with a registered investment advisor before making investment decisions and to understand the risks of the investment. You may also want to speak with an independent geologist, mining engineer, lawyer, or accountant when looking at a mining investment opportunity.

Go to the BCSC’s Mining page to learn more about mining regulation and disclosure in BC.

Report a Concern

If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Contact Centre at 604-899-6854,  1-800-373-6393, or through email at [email protected]. You can file a complaint or submit a tip anonymously using the BCSC’s online complaint form.

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