Investing in mining stocks and rights can offer opportunities for profit related to the extraction of valuable resources. However, these investments are exposed to significant risks, including market volatility, high operating costs and geopolitical factors. Understanding these aspects is essential to assess the true potential for returns.
Investing in mining stocks or mining rights is absolutely not the same as investing in precious metals! The increase in the price of gold does not always translate into an increase in the shares of these companies!
Disclaimer:
The information provided does not constitute a solicitation for the placement of personal savings. The use of the data and information contained as support for personal investment operations is at the complete risk of the reader.
In a certain sense, investing in mining stocks means investing in all those precious metals that have not yet been mined and are found underground. When precious metal prices rise, mining companies tend to outperform metals, but when prices fall, the value of these companies tends to decline much more.
In a certain sense, mining stocks, on average (but not always!), offer a natural leverage effect on the price of precious metals with multipliers that can easily exceed 5x. However, the above does not apply to all mining companies as the operations of each of them are influenced by multiple factors.
You have to be aware that in the mining industry there are many things that could go wrong: the collapse of a mine, the cessation of activities due to environmental reasons, strikes, laws or bad management decisions.
Also know that buying shares of mining companies means investing in a team of geologists and managers of even greater importance than the deposit itself. In essence, if you have no way of knowing the staff of the mining company in which you want to invest, stay away and buy some “simple” precious metal.
There are several mining companies and the most famous ones can be found within any thematic gold mining ETF such as the iShares Gold Producers UCITS ETF.
#2. Investing in concession rights
Also called royalties, they are not investments that share the risks associated with the mines but rather the extractable potential from them. They are concession rights on extraction. Simply put, owning a share of a concession means receiving a constant portion of the cash flow that is contractually tied and proportional to each quantity that is extracted.
To give an example as close as possible to our daily life, it is a bit like renting the land to someone . The owners of the land do not worry about the work to be done, it will be done by the owners of the mine that will be set up on it. The more gold is extracted from the mine, the greater the cash flows will be, consequently the owner of the rights will have greater revenues.
From a risk point of view they do not have all the problems related to mining companies but the greatest danger is concentrated in incorrectly estimating the quantity of precious metal present in the land that is the object of the concession right.
There are not many mining royalties companies and the most important ones are:
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