The Role of Mining Stocks in the Mineral Industry

By Ignatius Kamwanje

Mining Stocks are publicly trading companies that are mainly focused on finding, extracting and processing various mineral deposits and materials of value. These mining stocks are divided into two categories namely; Junior and Major mining stocks.

               1. Junior Mining stocks

Mostly these are mineral exploration companies and the risk of venturing is high due to uncertainty of finding the minerals in the ground.  These also include oil and gas exploration companies. Junior mining stocks are mostly beginners with growth potential where they need to discover specific minerals on the ground, mine, refine and sell while major ones are the captains of the industry with already existing value Junior stocks tend to have very little capital, they are essentially new and upcoming companies that are seeking to develop a deposit. A lot of junior mining companies are venture capital recipients that are looking for financiers for their operations. In other developments, a junior mining stock may not conduct its own operations but may look to secure some capital to undertake the business

            2. Major Mining stocks

These are matured stocks and are less volatile since they have a large portfolio and are well established and have even capital to finance other or further exploration activities. With decades of rich history, major mining stocks are value stocks since they established with successful operations at the time of production

Major stocks are well capitalized world class operations, with steady cash flow and are mining giants others being Multinationals. They are somewhat similar to major oil companies and have proven and probable resources available. Major stocks find it easy to invest and evaluate.

            3. General Risks associated with mining stocks

  • Finding a good and promising geological area to claim
  • Change or fluctuation in world mineral commodity prices
  • Geo-political factors where mining is taking place
  • Failure of banks or lenders to support especially junior ones are riskier than major. If a junior finds the right deposit and the right time, it will be less risky since the returns will be more in a few days than a major will return in years.
  • Not all mining stocks pay dividends. Generally the larger established ones, the major stocks pay dividends while the less established, the juniors do not pay dividends. This is because they reinvest their earnings back inorder to fund their growth.
  • Of late there are Bitcoin mining stocks that are rallying but some are poised for a fall if cryptocurrency hits a certain level
  • There is also mining ETF (Extended Traded Funds) which is gaining access to metals and mining stocks to invest in a well-diversified portfolio, a simple way to profit from rising metal prices.It presents an opportunity to protect against inflation since there is a surge in global metals demand. However, there are risks that mining stocks may lose investments due to emerging markets, risk of investing in natuural resource companies that can easily be affected by events relating to alternative industries and risk in investing in smaller companies.

          4. Importance of feasibility studies to both Junior and Major mining stocks

The most common aspect of both the junior and major mining stocks is that  they all roughly follow the current market value of the stocks and  and also  fairly follows a business model that is uniquely identified by using up the assets that they have in the ground as minerals. In essence this means all mining companies categories are not exactly sure how much of the deposit should be extracted from the ground since resources are based on estimates derived from data simulations.

Mineral reserves are evaluated through feasibility studies, to independently evaluate the deposit in terms of size, grade and tonnage. A deposit will only be feasible if it is projected that it will fetch more money at a given market value. It must be noted that a change in the market value of a mineral that makes up a large volume percentage will have a much larger effect than than a new deposit.It can therefore be said that a Junior mining stock/company can easily fail or die out based on the feasibility study results. Under such circumstances a junior stock may sell off the deposit to a major stock and move on to search for a new exploration target.It can be argued that the importance and significance of a junior mining company/stock is that it acts as a conduit or pipeline that feed the major stocks. So the Risk-Reward strategy lies to junior mining stocks. Depending on what an aspiring miner is looking for, it is up to him make a decision whether to venture into Junior or major mining stock to make profits. Most junior stocks have the potential for a right market.

Leave a Reply