Unlike the other businesses, mining is extremely risk-sensitive. There are much more mining companies than there are projects, and the supply and demand ratio is the key fact that makes your investing profitable or not. In California, the risks of investing in mining are determined by somewhat different criteria in comparison to the other states.
What risks follow investing in mining?
Almost like any other market, mining market is facing the lowest point in the last three decades. The prices of commodities are dropping, which is good news if you want to invest in mining now. However, no one can tell you how long this bear market will last. Thus, you have to do your homework before you make any investments in mining.
Let’s take a look at the most common risks that are related to the mining industry in California.
The geological challenges such as the actual deposit of the mine, the dilution, or low mining rate can significantly influence the success of an investment. In the case of a low extraction rate, the company will start to lose money, because they can’t longer rely on a deposit which won’t make any profit in a reasonable period.
Mining investing experts consider management to be one of the crucial aspects of a company’s reputation and stability. Without the experienced and sound management, any investment or project will fail. This is possibly the biggest risk that follows mining investing.
Security of tenure
The location of which a company owns or ought to own a mine is of great importance to the future success of the portfolio. Most mines are located in the first world countries, especially in Canada and Australia. The main reason is the rule of law applies, which gives investors and companies a security to do their business.
You never know whether an individual metal or mineral exists in mine and if it does, in what quantities. That’s why mining companies hire geologists, to perform a feasibility study. In other words, they’re going to inspect and analyze whether there is a chance that a particular mine can be found.
Mining investing comes with a significant publicity, which often means a lot of misleading information and data. For first-time investors, a story about a mine that will be producing gold in less than five years seems appealing but is not realistic. So, if you want to stay off the risk, you should be well informed by an expert, or by doing your due diligence.