Are mining and mineral stocks risky?

Mining and mineral stocks do pose some risks investors should be aware of. First off, the industry is highly cyclical, meaning it rises and falls with the overall economy. When the economy is doing fairly well, the market demands more minerals: buildings are going up, consumers are buying more gold, construction is consistent. When the economy falls, however, demand for minerals tends to fall with it. The cyclical nature of energy stocks makes them more volatile than, say, utilities and consumer staples. Another risk investors should take note of is expansion. Building mines is very expensive, much more expensive than building a new corporate headquarters. In the past, mines have expanded their enterprises during strong periods of economic growth, only to launch when the economy begins to sink. For both these reasons, it’s vital to analyze a mining company’s finances. If the company is saddled with debt, that could be an indicator it’s overextending itself, despite supposed growth.

Are mining stocks a good investment?

Mining stocks can be a great investment, however, there are some things to keep in mind before investing. Mining stocks can be very volatile depending on economic conditions. That being said, the best Canadian mining companies have been able to generate good profit regardless of economic conditions.

Metals and Mining Stocks News

Metals and Mining Stocks

What are mining and mineral stocks?

Mining and mineral stocks represent partial ownership in companies that find, extract, and process minerals and materials. The materials sector makes up a large portion of Canadian stocks, with the TSX having more mining stocks than any other market in the world. Here are some minerals these companies extract:

Precious metals: gold, silver, platinum, palladium
Industrial metals: iron, ore, zinc, cobalt, lithium, nickel, copper, aluminum
Construction materials: sand, crushed stone, limestone
Energy materials: coal, oil sands, uranium
Fertilizers: boron, potash, phosphate

How can you find good mining stocks?

1. Know the mining industry

The mining industry is fairly complex. Not only do mining companies operate in a manner distinct from any other sector — they literally dig into the ground, not sit in swivel chairs — but also the vocabulary and industry terms can be complex, too.

From the mining process to machinery to the minerals themselves, mining investors will do well to know exactly what a mining company does before buying its stocks.

2. Analyze its financial strength

Investors should find mining companies that can withstand economic downturns and recessions. Two factors that will help you assess a mining company’s finances are production costs and balance sheets.

In general, a mining company shouldn’t be dishing out too much of its revenues to cover production. If it does, it might not remain profitable during tough economic times. The lower its operation costs, the more value mining companies can return to its investors.

Similarly, a good mining company won’t take out enormous amounts of debt to cover expansion or production. It has a strong balance sheet, meaning it has cash on hand, as well as a capacity to borrow if it needs to. With strong finances, a good mining company will have more flexibility and strength to withstand downturns.

3. Check here for more updates

Finally, to help you stay up-to-date on the mining and mineral industry, check here for our writers’ stock analyses .With the mining industry changing as much as it has, our writers will help you choose carefully, as well as teach you how to think about stocks.

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Frequently Asked Questions

: Mining and mineral stocks do pose some risks investors should be aware of.

First off, the industry is highly cyclical, meaning it rises and falls with the overall economy. When the economy is doing fairly well, the market demands more minerals: buildings are going up, consumers are buying more gold, construction is consistent. When the economy falls, however, demand for minerals tends to fall with it. The cyclical nature of energy stocks makes them more volatile than, say, utilities and consumer staples.

Another risk investors should take note of is expansion. Building mines is very expensive, much more expensive than building a new corporate headquarters. In the past, mines have expanded their enterprises during strong periods of economic growth, only to launch when the economy begins to sink.

For both these reasons, it’s vital to analyze a mining company’s finances. If the company is saddled with debt, that could be an indicator it’s overextending itself, despite supposed growth.
: Mining stocks can be a great investment, however, there are some things to keep in mind before investing.

Mining stocks can be very volatile depending on economic conditions. That being said, the best Canadian mining companies have been able to generate good profit regardless of economic conditions.

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