The mining industry has played a crucial role in keeping the global market steady for quite a while. And like other industries, this industry has also faced a recession. But has started to flourish in the stock market since then.
The mining industry is a vital part of many industries, like the aerospace & automotive sectors. This industry has its appeal to the investors till this date.
The recent news of paying significant dividends & the promise of high returns have made people invest more in this sector.
What Is Underground Mining?
Underground mining refers to all techniques & types of equipment associated with excavating hard minerals & metals. Ores containing iron, gold, silver, copper, etc. fall under this category. Mining can happen on the surface or underground.
Underground mining uses many types of machinery like mineral processing, crushing, screening, pulverizing, etc. The most popular mining is coal, mineral, metal, and hard rock. Each of them has different perks and to learn more about it, you can check out this Quick Guide to Hard Rock Mining.
However, mining investment includes investing in those companies or shares that incorporate mining. Starting from the material to the tech support- all fall under the mining stocks.
Types Of Mining Stock
Mining stocks are mainly of three types. As mining is an intricate process & has many stages involved, so do these stocks. The below-mentioned types can categorize the mining stocks-
All mining companies that come to the stock market begin as junior companies. These companies remain in the exploration stages of finding locations of the ores. They require significant funding & offer high profit in return.
These are small companies with small capitals. Therefore, the risk involved is higher than in other categories.
Mid-tier mining companies can vary. Some of these companies have just discovered a mine & don’t have quite a picture of the resources present. Some mid-tier companies have found & measured the resources present but are waiting for funding to mine.
These mid-tier stocks contain fewer risks than junior ones. However, the return is not as high as the junior companies.
These are the well-established companies that are way past the exploration phase. They have started producing & selling resources. They have the capital back up and offer a steady dividend to the shareholders.
Although the profits aren’t as significant as the juniors or mid-tires, these stocks assure you of a steady income. Major mining stocks don’t necessarily focus on exploration. Instead, they buy or hire the junior & mid-tier companies & form a mining project to diversify their businesses.
Benefits Of Investing In Underground Mining Stocks
Some call it luck or good timing if you are gaining fortune by investing in mining stocks. However, there are many benefits to investing in the mining industry.
1. Valuable Resources
Mining solely relies on excavating non-renewable natural sources. You will not find any sector that doesn’t depend on natural resources.
For example, if you want to invest in the real estate sector instead of mining, think about how you can build houses without using iron or steel.
Healthcare sectors also depend on silver’s antiseptic properties. Bitcoin relies totally on computers. You will need battery metals to build the computer. Wherever you look, you can’t deny the necessity of natural resources.
Although the world is shifting towards green technology, excavating natural resources will always be important. As gold will forever remain valuable & steel, oil, gas will be valuable undoubtedly, mining stocks will have their demand intact.
2. An Established Industry
Mining is a centuries-old technique. Therefore, this well-established industry will always have its demand. As a solid & firm industry, mining industries’ stocks follow a pattern unless there is a massive recession.
Therefore, it’s easier to predict the stock values & how they will perform in the coming years. You can make a solid prediction & invest.
3. Sufficient Supply
As the world population is increasing every day, the demand is also rising. With the availability of dwindling supplies, the prices will only go up. That said, the future of these stocks will only grow & generate high profits in return.
For instance, palladium has become the 4th precious metal in recent years because of its rarity. It even surpassed the price of gold in 2019 for the first time since 2001.
4. Easy To Understand
Unlike other stocks, mining stocks are straightforward. All you need to know is its life cycle & how it operates.
All mining companies go through the same life cycle, from exploration to the production stage. Once you understand these sectors’ jargon, you can easily calculate how these stocks will fare in the future.
Risks Associated With Mining Stocks
Like other stocks, mining stocks aren’t 100% risk-proof. Some common risks are listed below-
1. Lack of Information
Unlike other sectors, mining companies don’t provide enough info about their company’s position, expiration, expedition, etc. Without enough information, you are in a tough position to make a decision.
Retail investors suffer more than institutional investors. Institutional investors get restricted information by paying hefty prices, which becomes utterly impossible for retail investors.
2. You Can Get Fooled
Without enough resources, retail investors often fall into the junior mining stocks trap by trusting their sweet talks. Brokers often trick the retail investors as they are less knowledgeable than institutional investors.
3. High Volatility
There are tons of junior mining companies listed in the share market compared to only one hundred major companies. That said, all these junior companies will take at least 10 to 20 years to start mining their resources.
Some may disappear in the meantime, and some may get sold to those major ones. There are lots of uncertainties. Thus, it raises the bar of extreme volatility for these stocks
Future Of Mining Market
With the continuous increase in population & structural needs, natural resources will likely play a significant role. Statistics show that over the last few decades, mining stocks are growing slowly but steadily.
With the massive utilization of underground mining materials, the global underground mining market has seen an enormous rise in the last decade & it has a strong potential to grow in the next few decades. But you must research before deciding to invest in this sector.