Mining Stocks

Mining stocks are investments in companies that produce or explore for minerals. Some of these minerals include uranium, coal, molybdenum (which is used in steelmaking), copper, silver and gold. They are affected by fluctuating commodity prices in addition to their own business and operating risks.

While sometimes risky, mining stocks can also be strong performers when commodity prices move up. However, due to the volatility of these stocks, Pat McKeough recommends that they only form a modest part of a well-balanced portfolio.

Canadian penny mining stocks are some of the riskiest stocks you can buy. These companies are trying to find mineral deposits that mine at a profit and such a find are exceedingly rare. Because of this, it’s even more important to look for investment quality in penny mines.

For example, we automatically rule out investing in penny mines that promote themselves too aggressively or do so misleadingly. The mine-finding effort is more likely to succeed if the managers focus on finding a mine rather than hyping their stock.

Junior mining stocks are usually smaller companies that typically take on riskier mining projects. However, if a junior mining stock is successful at finding and mining, it can mean huge returns for investors.

No matter what type of mining stocks, or other stocks you invest in, TSI Network recommends following our three-part Successful Investor strategy:

– Invest mainly in well-established, mostly dividend-paying companies;
– Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities);
– Downplay or avoid stocks in the broker/media limelight.

canadian gold companies

The best Canadian gold companies will generate positive cash flow even with low gold prices

Most Canadian gold companies’ shares will continue to be heavily influenced by the direction of gold prices. Meanwhile, though, the best gold stocks will generate positive cash flow even with low gold prices—and also offer rising production outlooks.

Investing in the stocks of gold-mining companies lets you benefit from increases in the price of gold—and can sometimes give you both capital gains and dividend income. You also save on the higher brokerage fees and commissions associated with direct investment in gold—such as by buying bullion.


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Stocks in the best Canadian gold companies will generate positive cash flow even with low gold prices

Some of the most highly promoted gold mining stocks are penny stocks which have yet to produce an ounce of gold. Many must still add to their reserves, invest in mine feasibility studies, and raise a lot of money before they go into production. The prospects for most of these penny-mine properties, even though they may be in areas with production from existing mines nearby, are far from certain.

However, the best gold stocks have strong reserves, low production costs and are already producing gold. They may also have a range of development projects, but their strong base of production cuts the risk of relying on new developments alone.

Furthermore, we look for well-financed gold stocks with no immediate need to sell shares at low prices, since that would dilute existing investors’ interests. The best junior golds often have a major partner who has agreed to pay for the drilling or other exploration or development, in exchange for an interest in the property.

Remember, the very best gold stocks all have strong balance sheets and low debt.

Take a conservative approach to gold investing

Conservative investors should be very careful when choosing gold investments.

That’s because gold has a particularly strong grip on some investors’ imaginations, so they tend to bid up gold-stock prices out of proportion to how much profit these companies can make from gold mining.

Buying gold as an investment: seven guidelines we use for investing in Canadian gold companies

  • To increase your gold returns, look for well-financed companies with no immediate need to sell shares at low prices, since that would dilute existing investors’ interests.
  • High-quality gold stocks should have strong balance sheets with low debt. Junior mines should have a major partner who can finance a mine to production.
  • Another key ingredient is an experienced management team with a proven ability to develop and finance a mine.
  • We think you should avoid stocks that trade “over the counter,” where such things as regulatory reporting are lax.
  • We also recommend avoiding stocks that are trading at unsustainably high prices as a result of broker hype or investor mania.
  • Compare the market caps of the stocks with the estimated value of their assets or future earnings streams. Some need to quickly find a mineral deposit and begin production to justify the current share price and avoid collapse.
  • Above all, you should automatically rule out investing in companies that promote themselves too aggressively, or do so misleadingly. Success is more likely if the managers focus on finding or developing a mine, rather than touting their stock.

Mistakes you should avoid when investing in Canadian gold companies

The first of the gold investing mistakes you should avoid is gold futures or options. Rising gold prices can make trading gold futures and options look more attractive. However, you can only profit in future-linked deals by out-guessing other futures or options traders by a wide enough margin to cover commissions and other trading costs. When you dabble in commodity futures or options, you are betting against professionals who make a full-time occupation of studying these markets, who have better access to information than you do, and pay much lower commissions.

Most futures or options traders start out with a planned limit on how much they are willing to lose before they quit. In six months or so, most lose that amount, and quit trading. What’s more, because futures or options traders tend to trade often, a surprisingly large number find that the total brokerage commissions they pay during their trading career is close to the total losses on their commodity investments.

Do you hold investments in Canadian gold companies? How have they performed for you? Share your thoughts with us in the comments.

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Mining Stocks Post Archives

Mining Stocks: Gains ahead for Yamana Gold

Mining Stocks: Gains ahead for Yamana Gold

The gold producer saw its cash flow soar in the latest quarter on higher output at its mines but also rising prices for the precious metal.

YAMANA GOLD (Toronto symbol YRI; www.yamana.com) owns and operates six gold mines in Canada, Mexico, Brazil, Chile and Argentina… Read More

Mining Stocks: Outlook brightens for Teck

Mining Stocks: Outlook brightens for Teck

The miner’s cash flow could nearly double in 2017 on stronger prices for metallurgic coal but also zine and copper.
TECK RESOURCES LTD. (Toronto symbol TECK.B; www.teck.com) is a leading producer of metallurgical coal, a key ingredient in steel making. It also produces copper and zinc.
The… Read More

Mining Stocks: Finning ready for growth

Mining Stocks: Finning ready for growth

Finning International Inc. lifted its earnings in the latest quarter despite low commodity prices and their impact on sales of its heavy equipment.
FINNING INTERNATIONAL INC. (Toronto symbol FTT; www.finning.com) sells and services Caterpillar-brand heavy equipment in Canada, South America and the U.K. Its main customers… Read More

Mining company stocks: What to look for before you invest

Mining company stocks: What to look for before you invest

The best mining company stocks will have a record of success and a strong management team
Mining company stocks involve the exploration for, and the development and production of minerals. While sometimes risky, mining stocks can also be strong performers when commodity prices move up.
We think… Read More

The risks of following in celebrity investors’ footsteps

The risks of following in celebrity investors’ footsteps

Celebrity investors should be observed, not followed

In today’s celebrity-obsessed world, it’s natural for some investors to place a premium on celebrity-investor endorsements.

More and more investors seem to look on the involvement of celebrity investors like Warren Buffett or Bill Gates as something… Read More

The best mining stocks to buy meet all of these criteria

The best mining stocks to buy meet all of these criteria

If you have been searching for junior and major mining stocks to buy, learn these tips before investing.
The best mining stocks to buy can generally be broken up into two categories, juniors and majors.

Junior mining stocks are mining companies that are generally new or have… Read More

Investing in precious metals: What you need to know

Investing in precious metals: What you need to know

The inside scoop on successfully investing in precious metals like silver and gold.

Investing in precious metals is very attractive to many mining stock investors. That’s in addition to investments in companies that produce or explore for other minerals, such as uranium, coal, molybdenum… Read More