Should You Invest In A Mining Company’s Shares?

Conducting due diligence for a potential investment in a company is a very tedious process, and this often leads to many inexperienced investors putting up their capital with analysis of only partial information, or worse just a “gut feeling”-this can only lead to losses on the financial markets. The information in this article is designed to help you to quickly analyze the basic information about a resource company, and decide if it is worthwhile to perform a more in-depth analysis of the company as an investment for your portfolio.

When investigating a mining company to invest in, always remember to choose a corporation that mines a resource in which you already have a very positive outlook for the future. Do not invest in an extractive resource company that is harvesting a commodity that is currently in a cyclical downturn.

Your potential return on investment will be impacted by the stage in which the mining project is at when you decide to purchase equity in the company. The risk is greatest if you invest into an early stage project, with this risk dropping proportionally the closer the project comes to full production. Naturally those who expose themselves to the greatest risk will also potentially reap the biggest rewards if the project actually makes it to production.

In order to have a better understanding of the resource field, it is advised that each investor spend some time to familiarize themselves with the basic types of deposits that can be found in the ground related to their commodity of interest. A full explanation about deposits is beyond the scope of this article.

Understandably one of the keys to success for any extractive resource company is the management team. As a potential investor you must read up on the profiles of the team to see if they have a strong technical understanding and extensive experience in the mining industry. Read to find out if anyone from the team has previously put a mine into production, and if they have experience with raising capital for deployment to generate a consistent positive cash flow.

The first step is to visit the SEDAR website to download the most current financial statements so that you can examine how much spending occurs for general and administrative reasons. This website will also advise you about any debt that the company may have.

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