The coronavirus pandemic has seen volatile markets and see-sawing commodity prices.
While gold, silver, and other precious metals remained shiny amid buoyant demand, oil and coal have seen cautious exposure levels amid geopolitical, supply-demand dynamics, and environmental concerns.
Stock Price May not Necessary Move in Tandem with Commodity Prices: While share prices of mining players tend to soar with momentum in prices of underlying commodities, there can be exceptions as well.
Long term investment horizon: Mining industry investment is often taken as a hedge against inflation. Hence, investors should put only that money into the mining companies which they can either afford to lose or keep parked for a longer period of time. Mining companies’ project gestation period is typically long drawn.
Financial Footing: Potential investors should carefully evaluate the financial condition of the company. Operating costs, profits, output, and production guidance should be carefully studied. The mining industry is a high capital-intensive industry.
Majors Vs Juniors: One should know the risk appetite and return expectations before investing in any mining company. All major companies like BHP, Rio Tinto, or Glencore are into the mining business for a quite long period and have some of the world’s biggest reserves in their portfolio. Juniors, on the other hand, have smaller reserves to work with and lesser capital.
Commodity Portfolio and Commodity Grade: The investors should look onto the commodity portfolio and demand-supply dynamics prior to putting hard-earned money in the mining stocks. Once the investor has chosen the commodity, the next thing is to investigate the quality of the ores.
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