Commodities investing can be intimidating, but many market watchers believe now is a good time to get started.
Many people have read little about commodities investing since the 1997 collapse of Bre-X Minerals. But the junior mining industry has changed, and opportunities for investors abound.
The Bre-X Minerals scandal was something of a wakeup call for those involved in junior mining stocks. Thousands of investors all over the world lost billions of dollars in the aftermath of the event, and the entire small-cap space was painted in a negative light.
Stories of past failures were brought to the surface, and every junior mining company, legitimate or not, was placed under the microscope. Many were unable to gain financing in the newly hostile environment and dropped off the map.
That drought in financing lasted almost a decade. However, even as junior mining companies suffered and commodities prices remained low, the economies of developing countries continued to grow. Many of those countries — such as China, India, Brazil and Russia — have now emerged as economic powerhouses, and they are hungry for commodities like never before.
This article continues below the resource Investing Table of Contents.
Resource Investing Table of Contents
The articles listed below provide an overview of investing in resources from Resource Investing News.
Start Here – Investing in Resources
- Birth to Death: The Lifecycle of a Mine
- What is a PEA?
- What are Prefeasibility and Feasibility Studies?
- What is an Offtake Agreement?
- What are Private Placements?
- What are Share Buybacks?
- When and How to Take a Long Position
- How Investors Can Profit from a Short Position
Resource Forecast – Expert Opinions On Precious Metals, Energy, Critical Metals, and More
- Gold Trends 2018: Gold Price Resilient in Face of Headwinds
- Gold Forecast 2019: Execs Hope for “Take-back” Year
- Gold Outlook 2019: Waiting for the Fed to Blink
- Silver Trends 2018: Strong US Dollar Puts Pressure on Price
- Silver Outlook 2019: Price to Rise on Tighter Supply
- Platinum Outlook 2019: Demand Decline to Dampen Prices
- Palladium Outlook 2019: Prices Will Continue to Shine
- Copper Trends 2018: The Year of the Trade War
- Copper Forecast 2019: CEOs Confident Copper Will Prevail
- Copper Outlook 2019: No End in Sight for Trade War Woes
- Zinc Trends 2018: The 12-month Rollercoaster
- Zinc Outlook 2019: A Year That Has to Be Better
- Nickel Trends 2018: Becoming a Battery Metal
- Nickel Outlook 2019: No Boom, but Batteries Loom
- Iron Outlook 2019: Premium Prices for Premium Grade
- Lead Outlook 2019: Mines Back Online as Prices Dither
- Lithium Trends 2018: Oversupply Fake News?
- Lithium Forecast 2019: Execs Agree Lithium Fundamentals Remain Strong
- Lithium Outlook 2019: A Transition Year Ahead
- Cobalt Trends 2018: Prices Fall, Nickel Threat Creeps Up
- Cobalt Forecast 2019: Execs Optimistic Cobalt Demand is Here to Stay
- Cobalt Outlook 2019: Will Prices Continue to Fall?
- Graphite Outlook 2019: Will Supply Increase?
- Graphite Forecast 2019: Execs Optimistic, Say Investors Must Do Research
- Vanadium Outlook 2019: After the “Year of Vanadium,” What’s Next?
- Manganese Outlook 2019: Price Growth Ahead
- Uranium Trends 2018: Supply Dwindles as Demand Surges
- Uranium Outlook 2019: Supply to Fall, Demand to Rise — Prices to Jump?
- Oil and Gas Outlook 2019: Output Cuts to Correct Market
- Diamond Outlook 2019: Technology Driving Sector Change
- Rare Earths Outlook 2019: EV Production to Drive Demand
- Tungsten Outlook 2019: Will Shortfalls Drive Prices Up?
- Magnesium Outlook 2019: Expect Steady Demand as China Squeezes Supply
- Tantalum Mining and How to Invest
- Why Scandium Could Be a Huge Opportunity
- Potash Outlook 2019: Steady Price Growth Expected
- Phosphate Outlook 2019: Supply Constraints to Bolster Prices
- Coal Outlook 2019: Demand to Remain Stable
- Aluminum Outlook 2019: US-China Trade War to Drive Pricing
- Tin Outlook 2019: A Bright Year Ahead?
- Molybdenum Outlook 2019: Price Recovery to Continue
- Introduction to Chromium Investing
Another positive trend during that decade was the modernization of the junior mining space from a regulatory perspective. Among other things, the Canadian Securities Administration, a forum for the 13 securities regulators from the country’s provinces and territories, created guidelines for how companies must disclose scientific and technical information when exploring for minerals.
Guidelines now exist for everything companies say about their findings, and companies must have what they say vetted by external, independent organizations.
Given those sweeping changes, many investors curious about the mining sector are wondering whether it’s now safe to invest in junior mining stocks. And for many market watchers, the answer is yes. The resource sector is currently recovering from a bear market, and the overall consensus is that a lot of companies creating shareholder value on the stock market are priced well below what they are worth.
The chart below from TradingView gives some idea of where the market is at right now. It shows the performance of the S&P/TSX Composite Index (INDEXTSI:OSPTX) from January 1, 1990 to September 5, 2019 — many junior miners are listed on the index, and when it’s trending upward it’s generally a sign that commodities are doing well, too.
Chart via TradingView.com.
That said, it’s important to remember that junior mining and junior exploration companies inherently come with a fair amount of risk attached. The success of any company depends on whether it can find the metals or mineral it’s seeking through exploration, and then if it can sell and ship them to buyers for a price higher than the cost of production.
Those things depend not only on the cost of setting up mines and processing ore, but also on the market price for the commodity being sold and the mine’s proximity to the market it’s selling to.
There’s also the factor of asset management that needs to take place within mining companies. Even with a strong asset, a promising mineral resource and a decent market cap, a company needs to play its cards right to maintain investor trust and see worthy cash flow.
Like so many entrepreneurial situations, myriad things can go wrong.
But of course, there are also significant opportunities for profit in mining stocks, and many investors are looking for a piece of the pie. Some hire experts to manage their capital, while others decide to go the extra mile and investigate in hopes of finding great resource stocks themselves.
Every investor, however, can rest assured that the mining sector has progressed to the point that the information companies release has been reviewed by experts in the mining industry who stake their reputation on its accuracy.
This is an updated version of an article first published by the Investing News Network in 2008.
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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.