What i’ve learnt
- Firstly, help yourself to a large dose of scepticism. Seriously. Small mining companies and explorers seem to constantly over exaggerate potential, timescales and underestimate costs. This leads to the market being dissapointed and confidence in the company reduced. It also leads to cost over runs, running out of cash and having to refinance/take on debt/issue more shares – all bad news for shareholders.
- Explorers are speculative, with timescales being in years before a mine goes through all the required tests and gains the required permissions.
- There are mega caps like Rio Tinto (more correlated to global output/need for raw materials)and there are of course tiddlers with perhaps one mine somewhere they are pinning their hopes on.
- Miners are correlated with commodity prices. if the company mines copper, then expect its share price to correlate to the price of copper over time.
- Finally i have found some interesting looking miners, only to later discover some complex and confusing financial arrangements that exist where profit or assets are shared/split/part owned by another entity. Far too confusing for anyone other than an expert and often the financial arrangements may be hidden in RNS stories from way back.
There is an interesting article over on Investors Chronicle about mining companies and how such a small % are successful.
In summary, i’d have to have some very compelling reasons to invest in small miners. Hopefully i’ve dampened any mining risk taking tendencies you may have – just as i did(do!). It’s far to had to judge the risks and potential rewards unless you are experienced in this sector. My only mining position ever is Frontier Mining who i believe are priced cheaply due to poor expectations management/communication with shareholders. They are just starting to produce and i’m hoping i bought in on a low with plenty of upside as they increase (hopefully) production. I couldn’t find any nasties lurking but you never know…