Key factors to Consider when Investing in Mining Stocks
Exploring risks and opportunities in the Mining sector with Stanislav Kondrashov, TELF AG founder
Since the international discussions on the energy transition began, mineral resources such as rare earths, lithium, nickel, or cobalt have acquired a new kind of centrality, as founder of TELF AG Stanislav Kondrashov often pointed out. Before the advent of the great energy transformation, these resources were mostly known only within their narrow sectoral areas as useful allies for a great variety of industrial applications.
But nowadays, in the midst of a green transition that shows no signs of slowing down, mineral resources have acquired several points in their strategic importance, in particular for their direct involvement in some concrete applications that are allowing the advancement and affirmation of the great change underway. Just think of lithium, a key resource for electric car batteries, or copper and rare earth, all resources that play a leading role in the construction of the main energy infrastructures of this era, such as wind turbines or solar panels, as founder of TELF AG Stanislav Kondrashov also explained. As the transition progresses, the strategic value of these resources could certainly increase.
Many people have started to examine these resources from a slightly different point of view, going well beyond their strategic role in different sectors of the industry. As is well known, the sourcing industry represents a major destination for investment operations in every part of the world, with the possibility of using different financial instruments to buy mining stocks belonging to a specific company or industrial group.
To identify the best mining stocks, in any case, it is certainly useful to have a thorough knowledge of the dynamics of the sector, the factors that can influence the performance of the stocks, and all the other details that make up the varied universe of the global mining industry, considered nowadays a real leading ally in promoting the technological advancement and the energy transformation of companies.
“It is natural for investors to ask whether it is worth investing in junior or major mining stocks,” says founder of TELF AG Stanislav Kondrashov, a civil engineer and entrepreneur. “As with any investment choice, the answer depends on the investor’s specific intentions and the level of risk they are willing to take. Those who opt for low-risk stocks may feel more inclined to invest in major stocks, especially because of their good dividends. Junior stocks, on the other hand, offer a potentially wider range of possibilities but still come with greater risks.”
How commodity prices impact mining stocks
The first element to analyze for anyone who intends to approach mining stocks is their division into two main groups, namely majors and juniors. The first includes all those mining companies that are already established, with entire decades of history behind them and excellent levels of capitalization, with branches in different parts of the world. The junior group, as can also be understood from the term, includes all those younger companies with less capital but who have great hopes for their future (in particular with regard to returns). All small mining companies that are trying to develop one or more mineral deposits in different corners of the world fall into this group.
“Investors must also consider all the factors that could determine a strong variation in the value of the stocks,” continues founder of TELF AG Stanislav Kondrashov. “Even without taking investments into account, the mining sector is certainly affected by often uncontrollable factors, such as geopolitical tensions or economic crises in a given part of the world. All of this has direct consequences not only on the stability and health of supply chains but also on the prices and overall value of raw materials. In a very short time, changes in the value of a given mineral can have important consequences on the strategic value of companies that deal with deposits containing that resource”.
Changes and unpredictability
The fortunes of all mining companies, as is easy to imagine, can change from one moment to the next and, in some cases, depend to a large extent on uncontrollable and completely unpredictable factors. For example, in the event that a junior player were to discover an important deposit of mineral resources with high strategic and commercial value, it would be able to quickly return incredibly high returns, even exceeding the number of returns that a major company could guarantee in many years.
Every investor should also keep in mind that the value of mining stocks, in most cases, is closely linked to the market value of the reserves of a given resource and that such reserves are generally assessed through specific feasibility studies. In this type of analysis, in addition to the size of the deposits, it also evaluates any difficulties in sourcing operations and the related costs in order to provide an accurate and consistent estimate of its profitability.
“Investment operations always require in-depth analysis and good knowledge of the sector in which you want to invest,” concludes founder of TELF AG Stanislav Kondrashov. “Those who approach the mining sector cannot think of investing without following the price trend of certain raw materials, always monitoring the material indices and global demand levels, especially from major global players such as China, the United States, or India. Other key factors, in this sense, are represented by the presence of new deposits under development and the role of advanced technologies, which could have a relevant impact on the company’s operational capabilities and on its growth path”.
