1. They might harbour the perception that it is a very risky sector
2. They might consider it to be a very technical sector
3. They might consider it a too specialised and thus vulnerable approach to investment
My response to these questions is that:
1. Risk is managed - not avoided. By 'risk management' I mean identifying all the factors pertinent to mining which could conceivably impact on your investment. I have written a 450-page book on the topic based on my 30-odd years experience, and I've probably not missed much. The perceived risk is what makes the returns so great. The barriers to market entry are what results in stocks becoming so under-appreciated, so cheap, and ultimately so lucrative, to attract attention. Timing is very important; and awareness is critical.
2. Mining is technical - but its not incomprehensible. You will readily understand mining concepts, whether you look at online dictionaries, our book glossaries, or watch some online YouTube videos about mining.
3. Mining is specialised - The huge benefit about mining is that it entails knowledge that applies to all metal, energy or industrial commodities across the globe, and many of the concepts can be applied to other commodities (like dry bulk agricultural commodities or fertiliser). Our book explores a comprehensive range of topics relative to mining - and that's because I covered the breadth of the industry in my career history. There is generally always a 'sexy' sector to apply your knowledge to, even in a recession. Even if you are not interested in those 'hard calls' in recession, the returns are so lucrative in the bull markets that you will not regret the time & research investment.
Aside from these normal apprehensions about mining, there are a number of positive aspects:
1. The cycle - This helps to make different commodities appealing at different times, whether its copper, lead or zinc, counter-cyclical gold or precious metals, or exotic metals such as rare earths, tantalum or zircon.
2. The returns - Some projects are non-performers, but some well-managed companies simply offer enormous returns. We will show you that the best returns are not with the large companies but with companies with world-class projects offering stand-out benefits that differentiate them from the rest of the market. My best investment return was 3200% over 3 years - it was an option on a company called Aquarius Platinum. Other stand-out performers I bought were Queensland Gas Co, Minotaur Resources and Anvil Mining. All of these companies were exceptionally cheap until they became 'well-loved'.
3. The inherent value - Commodities are very valuable, so a miner basically has a license to make money over the life of the mine. If you understand the risks of mining you might realise that its best not to wait until you have achieved full value because the premium you pay for any extra return is not worth it. Some commodities like coal, iron ore, oil & gas are being taxed more, and this is certainly a dampener on some metals, or the countries in which they are mined (i.e. the Mineral Resource Rent Tax), however for other project vendors, the projects are still very lucrative in the right market conditions. i.e. gold in Africa. The royalties are very reasonable, and there is good potential for lucrative returns from positive project dynamics, without using debt leverage.
The returns are potentially so high because commodity prices are so volatile; yet predictably so, since they broadly follow cycles. High prices mean new supply is needed. So one looks for a good project. If you find a company with the right corporate and project qualities, you invest subject to pertinent factors.
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