Analytical Charts - Jim Wyckoff
Why I Don't Want to Own Mining Companies
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
I have long promulgated the idea that the junior exploration sector provides the highest risk / highest reward scenario within the broad category of natural resource stocks.
However, some speculators prefer to own senior mining stocks. These people like to think of themselves as investors because mining stocks have the possibility of strong incremental returns during bull market commodity cycles and they also may offer small yield dividends typical of the sector.
That said, I beg to differ and will continue to label them speculators for reasons detailed below.
I urge you to consider these somewhat sobering figures:
Webster’s Dictionary defines an investment as an outlay of money for income or profit.
Folks, this means that only one of five producing mines posts an income or profit to its owners, i.e., shareholders, and actually qualifies as an investment.
Given the above, I will conduct a thought experiment on the process of discovery, exploration, economic assessment, financing, mining, and success or failure:
But 40% of these mines do not return initial capital expenditures and thus are deemed economic failures. Another 40% manage to break even over the life of the mine.
Now think about this tidbit: Have you ever read a negative feasibility study?
Then recall this adage: For every failed mine, there was a positive feasibility study.
Therefore, I conclude that mining is seldom an investment.
Folks, this is why I don’t want to own shares in mining companies. Instead, I choose to speculate in junior exploration companies.
Ciao for now,