The mining industry has played a crucial role in keeping the global market steady for quite a while. Like other industries, it 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 appealed to investors to 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, such as mineral processing, crushing, screening, pulverizing, etc. The most popular types are coal, minerals, metal, and hard rock. Each has different perks, and to learn more about them, you can check out this Quick Guide to Hard Rock Mining.
However, mining investment includes investing in companies or shares that incorporate mining. From the material to the tech support, all fall under mining stocks.
Types Of Mining Stock
Mining stocks are mainly of three types. As mining is an intricate process involving many stages, so are these stocks. The below-mentioned types can categorize the mining stocks-
1. Juniors
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 profits in return.
These are small companies with small capital. Therefore, the risk involved is higher than in other categories.
2. Mid-Tiers
Mid-tier mining companies can vary. Some have just discovered a mine and don’t have quite a picture of the resources present. Some have found and 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 that of junior companies.
3. Majors
These are the well-established companies that are way past the exploration phase. They have started producing & selling resources. They have the capital backup and offer a steady dividend to the shareholders.
Although the profits aren’t as significant as those of the juniors or mid-tiers, these stocks assure you of a steady income. Major mining stocks don’t necessarily focus on exploration. Instead, they buy or hire junior and mid-tier companies and 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 stock values and how they will perform in the coming years. You can make a solid prediction and invest.
3. Sufficient Supply
As the world’s population increases every day, the demand also rises. 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, because of its rarity, palladium has become the fourth most valuable metal in recent years. 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 is impossible for retail investors.
2. You Can Get Fooled
Retail investors often fall into the junior mining stocks trap without enough resources by trusting their sweet talks. Brokers often trick 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 mining stocks have grown slowly but steadily over the last few decades.
Final Thoughts
With the massive utilization of underground mining materials, the global underground mining market has seen an enormous rise in the last decade and has a strong potential to grow in the next few decades. But you must research before deciding to invest in this sector.
