Mining can be a profitable business but usually, comes with a lot of risks. There are about 40.000 mining companies in the world, with 3.500 of them listed. However, not all businesses are of same expertise and market value. There are only 2.000 firms that are significant cap investing companies. The others are either mid or micro-cap investing companies, which usually means they’re stuck in exploration and development process.
In case you were considering to start investing in mining in California, here are some rules of thumb you shouldn’t miss out.
#1 Majors or Juniors
There are two fundamental distinctions within mining companies in California. Majors are the enterprises that have been long in the business, with some significant results, and a sustainable profit. On the other hand, juniors are companies that are still in the development process, with no bigger projects in their portfolio. Regarding risk, junior companies are a riskier to invest in, since they’re still not producing or selling consistently.
#2 Major caps or micro caps
In mining business, companies are ranked according to the total value of capital they’re holding. Major caps companies are holding several billion dollars value of money, while micro caps are holding up to a million. Besides these two groups, there are also mid caps companies, which runs with several million to a billion dollar valued capital. The value of capital is relevant information when deciding where to invest your money. Micro caps are usually a riskier option working with an unexplored mine. Mid caps are specialized in one or two mines, while major caps are diversifying their investments through several mines.
Like any business, mining also comes with certain risks, which makes it hard to predict what trend is going to take over the mining market in a given period of time. However, risks that are affecting the mining industry, especially in respect to investing, are impossible to control. Some of them depend on the political situation in the area where mine is placed, while other rely on the intrinsic features of the mine itself.
#4 Valuing Stocks
Although majors and juniors are very different, they share one common trait. They’re relying on their mine deposits. But the tricky part is they do not know how valuable a deposit is until it’s extracted. That’s why companies are performing feasibility studies and analysis before they began the extraction of the mine, to evaluate the ratio of costs of removal and the market value of a mine.