To The Moon

Mining Stocks🚜: Beginner’s Guide on the 2 Groups of Mining Companies-Part 2

Welcome🐯🐯🐯 to part 2 of my series on a beginner's guide to mining stocks🚜 In part 1 yesterday, I covered the key questions:

(1)Why Buy Mining Stocks❓

(2)What are the Risks for Mining Stocks❓

(3)How to Value Mining Stocks❓

Today, we will 🔎look into the 🔑 differences between the 2 major groups of mining companies & how to choose a mining company that best suits our investment risk tolerance😉 I’ll be using ASX mining companies for my explanations as I’m more familiar with them than 🇺🇸 mining companies.

🤔💭: Why Are Some Mining Stocks So Unbelievably Cheap (Less than 1 AUD) While Others are Way More Expensive (Close to 50-100 AUD)?

The mining sector can be split into 2 main groups: Juniors & Majors

⭐️ Juniors:

(1) are essentially smaller/newer companies that are developing/seeking to develop a natural resource deposit/field.

(2) are riskier ventures because they involve companies in the exploration or before-production stages;

(3) usually lack capital & have to go into several capital raising;

(4) have more volatility in their stocks prices. -20% & +20-70% is not unusual. Confirmation of oil/gas/coal/metals discovery usually sends stock price 🚀🚀🚀 🚀🚀

➡️ Therefore, the shares of Junior miners tend to be a lot cheaper. An IPO mining company usually starts out as cheap as 0.2 AUD😱

⭐️ Majors:

(1) are more mature/established companies that have proven & probable reserves & usually with decades of production history;

(2) have a large portfolio of claims, usually across countries;

(3) have a capital cushion used to finance further exploration; &

(4) have less volatility in their stock prices. Therefore the shares of Major miners shares tend to be more expensive😉

🤔💭: What are the 3 Possible Outcomes for Juniors?

(1) High possibility of failure ➡️ banks’ & investors’ 💸💸💸

(2) Moderate possibility to have enough success to justify a Major miner offering a buyout e.g. making an offer to take over (you can google to read the news). A buyout leads to decent returns for us 💵💵 as the buyout price is usually higher than its current stock price🥳🥳🥳

⭐️ Sometimes, a major may also offer a joint-venture which also increases the junior’s stock price😉

(3) Small possibility of finding a large deposit of a mineral that the market wants a lot of ➡️ Juniors can return more in a few days than a major will return in years 💵💵💵💵💵🚀🚀🚀🚀🚀

🤔💭: What Mining Companies are Available for Investors with Different Levels of Risk Tolerance?

(1)🚀Low Risk Investors: Research on Major miners with high dividends that also have potential for capital gains🕵🏻🕵🏻‍♂️

⭐️ ASX 20 Miners: BHP Group (BHP), Woodside Energy Group (WDS), Fortescue Metals Group $FORTESCUE METALS GROUP LTD(FMG.AU)$RIO Tinto $Rio Tinto Ltd(RIO.AU)$Santos (STO), & SOUTH32 $South32(S32.AU)$

➡️ ASX 20 is Australia's Top 20 companies by market capitalisation.

⭐️ When there’s a market sell-off, it’s the best time to buy these companies as they’re known to rebound & getting the stock at a lower price means a higher dividend yield for years to come🥳🥳🥳 Look for 100% franked dividends as you won’t have to pay any withholding tax if you’re a 🇸🇬 resident.

(2)🚀🚀Medium Risk Investors: Research on Juniors that have reported success in exploration &/or preparing for production &/or near production with a strong balance sheet🕵🏻🕵🏻‍♂️

⭐️ Holding miners of this category increases the chance of a company buyout, allowing us to pocket the difference😉 We pay a slightly higher price for the stock as compared to its IPO price but the risk of the miner failing is less & we doesn’t pay as much as compared to a Major. Downside for these juniors is that these companies usually have low dividends but we’re trading off the low dividends for an opportunity to gain high capital returns😉

⚠️ Note: Capital raising can sometimes cause the stock price to drop if the new shares are offered at a much lower price than the stock’s trading price.

(3)🚀🚀🚀 High Risk Investors: Research on Junior miners who’re into clean energy metals & are about to IPO-Do they have any links with the Majors e.g. spin-offs/joint ventures/exploring an area that’s close to a Major’s mine🕵🏻🕵🏻‍♂️

⭐️ These IPOs would have a slightly higher chance of succeeding😉

⚠️ No dividends for several years.

In part 3 of this series, I will introduce the top mining companies in the 🌎 If you haven’t read part 1 of this series (Mining Stocks🚜:Beginner’s Guide for Keen Investors-Part 1) & other related posts, click on the Snoopy icon to access them on my homepage🕵🏻👩🏻‍💻 Please help to click on the “Like” & “Share/Repost” buttons for my clean energy & mining posts, so that more 🐯🐯🐯 can access the information & we can all accumulate wealth together during this clean energy revolution😉🥳 Many thanks🤗

My posts are for knowledge sharing purposes (not investment advice), so please DYODD on top of reading my posts & never invest money you can’t afford to lose🤓

As usual-🤔💭 Consider POV & Actions of investors + 👩🏻‍💻👨🏻‍💻 Research + 🗑FOMO & Greed = Investing Wisely 🤓🤗 + Accumulating Wealth 💵💰

Source website: Investopedia 

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