With its large geography, Australia is the world’s eighth largest country in the world for natural resources which is why the country’s primary sharemarket – the ASX – is home to hundreds of speculative exploration and mining companies
What is the difference between a mining company and an exploration company?
A mining company is a company that extracts and produces minerals and other resources from mines.
An exploration company is a company that searches for mineral deposits and resources that have not yet been discovered. Exploration companies typically do not extract or produce minerals, but instead focus on finding and developing new mineral resources.
When it comes to investing in these companies, which can be classified as exploration, mining or resource companies, they can be a risky proposition for a number of reasons.
Commodity Prices
One of the biggest risks is the volatility of commodity prices, which can have a significant impact on the profitability of mining companies. For example, if the price of a commodity such as gold or copper were to drop significantly, it could negatively impact the financial performance of a mining company that is heavily reliant on that commodity.
Commodity prices are publicly traded on exchanges such as the London Metals Exchange. These prices will likely fluctuate based on traditional supply and demand econometrics where supply shortages lead to higher pricing.
Mining is expensive to undertake, without guaranteed returns
Another risk associated with investing in mining companies is the high level of debt that many of these companies carry. Mining is a capital-intensive industry, and many mining companies borrow large sums of money to finance their operations.
If commodity prices were to fall or mining operations were to be disrupted, the company’s ability to repay its debt could be called into question, which could lead to financial difficulties which can be accentuated further because it can often take more than five years for a company to advance from exploration to mining.
Safety risks – Regulatory, Political, Geopolitical and Environmental
Another risk that investors in mining companies should be aware of is the potential for accidents and environmental disasters. The mining process can be dangerous, and there is always the risk of accidents such as cave-ins or explosions. Additionally, mining can have a negative impact on the environment, and mining companies are often held liable for any environmental damage caused by their operations.
In addition to these risks, there is also the risk of political instability in countries where mining companies operate. For example, mining companies operating in countries with weak governments or political unrest may be at risk of having their assets seized or being forced to pay exorbitant taxes or royalties.
Finally, investors should be aware that mining companies are often subject to significant regulatory oversight, and changes in regulations can have a major impact on the profitability of mining companies.
Despite these risks, investing in mining companies can also be a rewarding experience. Mining companies can be a great way to gain exposure to the price of commodities, and they can also provide a source of steady income through dividends. However, investors should be aware of the risks and conduct thorough due diligence before investing in a mining company.
FAQs
Mining is expensive to undertake, without guaranteed returns
How risky are mining stocks? ›
Mining companies are exposed to several unique risks including fluctuations in commodities prices, geopolitical factors where mines are located, and finding lucrative geological areas to stake a claim.
What are the risks of mining? ›
The most common mining hazards include but are not limited to ground collapse, subsidence, fault reactivation and fissures, mine water rebound, acid mine water drainage, mine gas emissions, and combustion.
Should you invest in mining stocks? ›
Reasons to invest in the mining sector
Investors often put money into the mining sector as a way of hedging against inflation and as a play on the economy. If the economy is doing well, demand for metals will increase, and mining shares will rise along with the prices for the end goods that their metals are used in.
What are the risks of EY 2024? ›
Top risks and expectations for 2024
The ongoing economic uncertainty, growing geopolitical turmoil, cybersecurity, artificial intelligence and other disruptive technologies, labor shortages, cost-of-living crisis and extreme weather events continue to be areas of focus for organizations.
Is it safe to invest in mining? ›
The mining process can be dangerous, and there is always the risk of accidents such as cave-ins or explosions. Additionally, mining can have a negative impact on the environment, and mining companies are often held liable for any environmental damage caused by their operations.
How unhealthy is mining? ›
Health effects of mining very severe
The mercury used in mining causes a number of different health problems, including neurological disorders and kidney diseases. Besides mercury-poisoning, people living around mines are polluted by lead, zinc and copper.
What are the 5 negative effects of mining? ›
Many negative impacts can result from mining activities. Some examples include climate change, deforestation/habitat destruction, pollution, soil erosion, human-wildlife conflict, and the loss of biodiversity.
What are 3 cons of mining? ›
Impacts of Mining
- forcing them from their homes and land.
- preventing them from accessing clean land and water.
- impacting on their health and livelihoods.
- causing divisions in communities over who benefits from the mine and who doesn't.
- changing the social dynamics of a community.
Underground mining is one of the most hazardous types of mining due to the confined spaces, unstable ground, and potential for cave-ins. Miners must work in cramped quarters in low light and often in wet conditions, making it difficult to move around safely.
Benefits of investing in mining shares
Without metals and minerals, we wouldn't have many of the modern technologies we rely on in our daily lives. It produces essential materials: Miners produce the raw materials required by almost every other sector of the economy.
Are mining stocks profitable? ›
Historically, though, miners' profits have increased in the months after each halving (as bitcoin's price increased). According to popular financial ratios (price-to-earnings, price-to-sales, and price-to-book), bitcoin mining stocks could be trading at good value vs the general US stock market.
How do mining companies make money? ›
Once they start mining, the ore is concentrated, and refined into metals like copper, zinc, or gold and sold on the open market. To be profitable, the company must have a higher return from selling the minerals than their total expenditures by at least 10-20% (actual amounts vary company by company).
Is EY going to lay off employees? ›
Ernst & Young is eliminating 3,000 positions in the U.S. — about 5% of its American workforce — as it addresses "overcapacity" in parts of the company, the accounting giant told the Financial Times.
Is getting a job at EY hard? ›
EY (Ernest& Young) is one of the Big Four accounting companies, and this makes their hiring process extremely challenging and competitive. Applicants must participate in multiple rounds of interviews to be considered and EY seeks out top graduates from acclaimed academic institutions.
What is the EY risk platform? ›
EY Risk Navigator integrates powerful predictive analytics, risk monitoring and forecasting tools in the cloud. You get the data you need quickly, helping you make faster and better-informed business decisions.
Are mining stocks good in a recession? ›
Some investors may want to consider gold stocks, such as mining companies. However, when the market goes down it can also drag down precious metals mining stocks as well, depending on the company. For instance, the VanEck Gold Miners ETF , which holds a basket of mining stocks plunged during the 2008 recession.
What is the outlook for mining stocks? ›
Our outlook for the mining industry is centered on three key themes: Spot prices are generally falling—though they remain elevated overall. Demand growth from China has been the main driver of rising commodities prices in the past two decades.
Is Investing in crypto Mining worth it? ›
With the right setup, Bitcoin mining is profitable. However, there is no definitive way to know how much money you will make from Bitcoin mining. This is because there are many variables that can determine profitability. For a start, you'll need to purchase Bitcoin mining equipment – known as ASICs.
