I've been interested in learning more about investing in mining companies for a long time. For me, the mining industry offers huge returns/losses (not unlike biotech). A successful investor must be able to grapple with 3 things that sets the mining industry apart from its industrial competitors:
- volatility: the double edge sword of quickly rising and falling commodity prices
- finite resources/lifespan: a major miner may run out of ore after 15 years while an industrial firm doesn't face this challenge
- need to replace resources: as finite resources run out, mining companies need to find replacement mines and resources -- if successful, frequently resulting in big appreciation in share price
- good track records: want to see if firms have the right people with the right skills to continue success
- adequate exploration funds: make sure firms have money in the bank to continue to explore for new resources to replace expiring resources
- good acreage: investors here want to look for firms that already have large amounts of land on their books and situated where other explorations have achieved success.