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How to Invest in Mining and Mineral Exploration Companies

By Edited Oct 17, 2015 1 0

Investing in mining and exploration companies

Every country in the world needs raw materials for industrial and commercial purposes. There are many companies involved in the exploration needed to find such materials and bring them to market. This represents an investment opportunity for those who wish to buy shares in these companies.

While each of the resource materials is somewhat different, there are similarities. First a deposit must be located and evaluated for commercial viability. Next a business case must be prepared to document the proposed resource utilization. Then regulations must be evaluated and followed. Eventually, a working mine is established and the resource is sold to willing buyers.

As anyone can imagine, there is a large amount of risk involved in the exploration and mining field. There is also a need for a lot of money to bring a potential mine into operation. This often requires years worth of activities by the company before any revenue is generated. During this time, the company expends funds on studies, drilling, market research and finally the construction of mines. Usually the companies issue stock shares to investors in order to fund the exploration. Investors buy the stock in hopes that a working mine is established which boosts the value of the company, and thus the value of their stock shares.

Many of the world's junior mineral exploration companies have established listings on the Toronto Stock Exchange in Canada, (TSX). This exchange is very familiar with the requirements that such companies must comply with. More oil and gas companies are listed on this exchange than on any other in the world. There are also a great many other resource companies on the Toronto exchange. The exchange is comprised of a senior and a venture board. Stock values are usually higher for those listed on the senior board. More speculative investments are usually found on the venture board. As companies mature, they often experience a rise in stock value. When they comply with the requirements of the senior board, they may switch away from the venture board. Similarly, companies experiencing volatile conditions may move to the venture board.

Those investors wishing to obtain stock shares in mineral exploration companies should check with their broker account holder to see if they may execute trades on the Toronto Stock Exchange.  Depending on the brokerage, they may offer direct investments in the TSX senior or venture exchanges. If the brokerage firm does not offer TSX trading, the investor may still find ways to obtain stock shares in the mineral exploration companies. Many of these maintain listings both on the Toronto Stock Exchange, the New York Stock Exchange or the Over the Counter Bulletin Board, OTCBB. Investors should be aware that many of the companies on the TSX venture exchange and OTCBB have very low capitilizations and may be penny stocks. They may also experience very volatle share prices.

Investing in any company's stock can be risky so investors are advised to perform all research necessary to identify possible issues with companies which interest the investor. This should be done before any stock share purchase is made. There are regulatory boards which monitor all companies that have stock shares trading on stock markets. This provides some investor protection but does not totally protect them. Business realities may also introduce risk to the investor's portfolio. The exploration company may find that a mineral deposit is not of high enough grade to mine. They may be subject to new environmental regulations that make extraction more costly or even impossible.

When the investor is aware of the risks and makes an investment in a mining or exploration company, the gains can be very lucrative. Legitimate company stock share price increases have greatly increased portfolio values for many investors. Sometimes these gains have been experienced very quickly. For example, a $1000 investment in Teck Resources Incorporated shares made in early 2009 would now be worth nearly $15,000. While this gain in stock value was spectacular indeed, an investment of $1000 in Potash Corporation of Saskatchewan in early 2009 would be worth $2000 today. A return of 100% in 2 years for a blue chip corporation that is the leader in their industry is quite significant for investors. Potash Corporation has also maintained a stock payment dividend and has actually doubled the dividend rate as of February 2011. They have also declared a 3 for 1 stock split. Other companies have had substantial gains in stock price. Of particular note for investors today are those junior potash exploration and production companies. These agencies hope to eventually duplicate the successes that Potash Corporation has seen. Bearing in mind the speculative nature of these investments, investors may want to consider stock shares in junior potash companies.

When an investor has purchased stock shares in a mining or mineral exploration company, they should continue to research available materials that refer to the companies concerned. This will allow the investor to benefit from material changes that may affect the performance of the stock price. For example, regulatory changes announced in the oil or gas area may cause additional costs for producers. Similarly, environmental concerns may change regulations for exploration activities. These may cause stock prices to decline. Investors may want to consider selling all or part of their portfolio to balance the risk against the possible stock price decline. Other research may show that increases in demand for potash, for example, are expected to continue for some time. As this may maintain the high cost of potash, it bodes well for those investors who hold potash producers and exploration companies in their portfolios.

Many of the investors looking to invest in junior mining and exploration companies will want to open brokerage accounts at a discount firm such as Etrade, Tradeking, TD Ameritrade, Scottrade or others. These allow investors to manage their own portfolios and to execute their own buy and sell transactions without interference by overseeing brokers. These firms also offer discount fees to investors who perform their own transactions. Most offer various research feeds to their account holders. Some offer access to live brokers as desired by the investor. This can be helpful when technical difficulties arise with the computer systems. If an error occurs during an online trade request, most discount brokerage firms will allow the execution of the trade by one of their brokers at the same online trading fee.

Many investors have made significant money by investing in mining and exploration companies looking to find and develop gold, silver, oil, gas and other resource deposits. There is a great deal of activity in the field which is financed by stocks issued on the various stock exchanges of the world. Do you research and consider if you are interested in participating in this investment avenue.

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