Tap into our mining investment resources to make sure you’re looking at all factors when investing in mining stocks
Mining stocks can generally be broken up into two categories, majors and juniors. Majors are typically mining companies that have been in the mining business for many years and more often than not they operate producing mines on a global scale. Majors have proven methods for exploration and mining, and have consistent output year over year.
Here are some mining investment resources that we think you could tap into to make better mining stock picks:
Learn everything you need to know in 'The Complete Guide to Mining Stocks' for FREE from The Successful Investor. Best Canadian Mining Stocks TSX: Plus Gold Stocks, Canadian Diamond Mines and more.
How Mining Stocks make a difference
Learn everything you need to know in 'The Complete Guide to Mining Stocks' for FREE from The Successful Investor.
Best Canadian Mining Stocks TSX: Plus Gold Stocks, Canadian Diamond Mines and more.
Focus on mining investment resources that help you spot the best stocks for your portfolio
When we’re looking at investing in mining companies, we aim for well-financed companies with no immediate need to sell shares at low prices. They typically have strong balance sheets with low debt. If they’re junior explorers, we like to see that they have a major partner who can help finance their exploration and development efforts.
However, we avoid any mining companies that trade “over the counter,” where such things as regulatory reporting are lax. And we don’t invest if the stock is trading at an unsustainably high price, because it’s likely the result of broker hype or investor mania.
Instead, we seek an experienced management team with a proven ability to develop and finance a mine. We make sure they’re not in any insecure or politically unstable regions, or in countries with little respect for property rights and the rule of law.
Finally, we look at the market cap of a company’s stock versus the estimated value of the mineral resource they have in the ground. Sometimes, a company’s marketing efforts are so successful that they drive the stock up too high in relation to the size of its ore body. We like a stock’s market cap to be no more than half the value of the mine. We assume that the company will be able to expand its reserves after the mine opens, but if the reserves are, say, double the stock’s market cap, it provides a margin of safety.
Take note of these 2 mining investment resources to help you cut risk—and improve your returns—in junior mining stocks
Here are 2 guidelines we use to pick junior mining stocks. We’re sure they can help you find the “gems among the rocks” in this fast-changing industry:
- When we recommend mining stocks, we want to see positive cash flow, preferably even when commodity prices are low. Even better, we like to see mining companies that have cash flow from an existing mine that is sufficient for, or at least contributes to, the cost of developing a second mine.
- We avoid junior mining stocks that trade at unsustainably high prices because of broker hype or investor mania. Instead, we focus on reasonably priced mining stocks with favourable geology.
Bonus tip: Discover how dividend stocks can pay off for you
- Growth and income. The best dividend-paying stocks offer both capital-gain growth potential and regular income from dividend payments. In fact, dividends are likely to still be paid regardless of how quickly the price of the underlying stock rises.
- Dividends can grow. Stock prices rise and fall, so capital losses often follow capital gains, at least temporarily. Interest on a bond or GIC holds steady, at best. But top dividend paying stocks like to ratchet their dividends upward—hold them steady in a bad year, raise them in a good one. That also gives you a hedge against inflation.
- Dividends are a sign of investment quality. Some good companies reinvest profits instead of paying dividends. But fraudulent and failing companies are hardly ever dividend paying stocks. So if you only buy stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst stocks. For a true measure of stability, focus on those companies that have maintained or raised their dividends during a recession and stock-market downturn. That’s because these firms leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they provide an attractive mix of safety, income and growth.
Bonus tip 2: Use our three-part Successful Investor approach for your overall portfolio
- First, invest mainly in well-established, mostly dividend-paying companies.
- Second, avoid or downplay stocks in the broker/media limelight.
- Third, spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities).
Scrutiny is coming to many mining companies due to environmental issues. How do you deal with the environmental controversies that may hinder some mining stocks?
Do you hold mining stocks in your portfolio? How are they performing for you?