Here’s one of a growing number of Canadian diamond stocks for aggressive investors
Canadian diamond stocks, like those around the world, are focused on the mining of diamonds–a transparent form of pure carbon, with dense crystal structures that make them the hardest substance known.
Canadian diamond stocks profit from more than demand for diamond jewelry. Diamonds are widely used for machining plastic, glass and metal. Diamonds’ resistance to wear makes them essential for automated processes that produce many copies of the same product, while their hardness makes them useful as an abrasive and grinding material. They’re also used in knives, scalpels for precise surgery and dental drills.
So far, established Canadian diamond stocks have developed five mines in Canada:
the Ekati mine in the Northwest Territories, developed from Charles Fipke’s discovery;
the Diavik mine in the Northwest Territories;
the Jericho mine in Nunavut;
the Snap Lake mine in the Northwest Territories (owned by De Beers Canada);
and the Victor mine in northern Ontario (also owned by De Beers).
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De Beers once produced about 90% of the world’s diamonds by number of carats. Its output is now about 35% of the world total, but the company remains a major factor in global diamond production and De Beers continually aims to boost its share of global diamond marketing.
Should you invest in Canadian diamond stocks?
Investing in Canadian diamond stocks is risky. It’s a long way between the exploration phase and commercial production, when they begin to produce diamonds for sale and start making money. As well, there’s often a long time lag between news of progress toward a mine, and share prices can drift down in the meantime.
However, those Canadian diamond stocks that find diamonds in mineable quantities can be hugely profitable. For example, the $700-million Ekati mine started up in 1998 and is generating over $500 million a year in revenue; it has an expected life of more than 20 years.
Cut your risk in the volatile resource sector by investing mainly in Canadian diamond stocks with profitable, well-established mines with high-quality reserves. For that matter, resource stocks (and this includes oil and gas, of course) should make up only a limited portion of your portfolio—say less than 20% for a conservative investor or as much as 30% for an aggressive investor.
While we think you should maintain some exposure in resource stocks, you should still aim for balance among most if not all of our five main economic sectors: Resources & Commodities, Finance, Manufacturing & Industry, Utilities and the Consumer sector. You should always resist the temptation to load up on mining stocks, no matter how attractive they appear. If the market does go into a downturn, these stocks could suffer more than average.
What’s a mining stock?
Mining stocks are investments in companies that produce or explore for minerals, such as diamonds, uranium, coal, molybdenum (which is used in steelmaking), copper and silver. Many would-be mining stocks are just promotional vehicles, but a select few are well-run corporations. The more efficient a mining company is at finding minerals and extracting minerals, the more profitable it will be.
Mining stocks can in general be broken up into two categories, majors and juniors. Majors are mining companies that have been in the mining business for many years and more often than not they operate on a global scale. Majors have proven methods for exploration and mining, and have consistent output year over year.
Junior mining stocks are mining companies that are new or have been in business for a decade or less. They are usually smaller companies and take on risky mining projects. But if a junior mining stock is successful at finding and mining a mineral deposit, it can mean huge returns for investors.
Do diamonds better as jewelry or investments? Please share your experience in the comments?
This article was originally published in 2015 and is regularly updated.
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