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Ron Phillips: Top Tips For Investing In Mining Stocks

According to Ron Phillips, publicly listed junior mining companies are typically smaller companies that take on riskier mining exploration and development projects. Investors may see significant returns if a junior mining company successfully finds a substantial mineral deposit that becomes profitable mine.

 Despite the potential for speculation in junior mining stocks, Ron Phillips advocates investing in the stocks of well-established mining companies with experienced management teams and cash reserves. Doing this can lower your risk in the choppy resource market. But you should only maintain a modest portion of your portfolio—less than 20% for a prudent investor and up to 30% for an aggressive investor—in resource equities.

 If you're thinking about buying mining stocks, consider the following:

 Prioritize Regions with Reliable Governments

 Ron Phillips recommends avoiding dealing with mining companies with assets in regions where the political situation is unpredictable or where there is a lack of regard for property rights or the rule of law. If the locals believe a foreign mining company is robbing them of their land or resources, they are likely to retaliate, potentially resulting in property damage or other costly complications with the mining operations. Such setbacks are likely to result in a drop in the mining firm's share prices and, in worse case scenarios, can lead to nationalizations of mines.

 Purchase Mining Stocks to a Hedge Against Inflation

 To hedge against inflation, many investors buy shares of mining companies. Some mining-related stocks also provide dividends, offering further financial incentives for investors. Ron Phillips explains that since metals prices typically increase along with inflation, mining company stocks can act as a hedge against inflation.

 Target a Dividend Yield

 Ron Phillips favors producing mining companies with positive cash flow. These companies will not have to issue additional shares when the markets are depressed and can offer dividends that support their share prices. Ron Phillips also generally favors base metals companies over precious metals companies since base metals companies often trade at lower valuations.

 Consider Investing in ETFs

 Ron Phillips believes that although gold and silver prices may continue to fluctuate, they could rise significantly more in the long run when essential currencies like the euro or the dollar suffer from inflation or widespread political and economic instability. A number of exchange-traded funds provide exposure to baskets of top-tier international mining companies.

 Consider the Lifespan

 Single mine companies with limited reserves must continually be successful in their exploration endeavors in order to survive. However, there is no assurance of success. Ron Phillips recommends considering the expected lifespan of a company's reserves before investing in any resource linked stock.

 Management Team Quality and Track Record Are Paramount

 Regardless of the size and quantity of a mining firm's reserves, Ron Phillips believes the primary driver of a mining company’s success is the experience and competence of the management team. Many poor management teams have driven good mines into the ground while great management teams are able to work their way out of tough situations. Management teams can be assessed based on the success or failure of prior companies where they had senior roles.

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Ron Phillips Shares Pros and Cons of Investing in Mining

Investments in the mining sector might be among the most volatile, but Ron Phillips believes high risk also carries tremendous potential gain. As a result, it is best to evaluate if mining investments suit you.

 Is Mining a Good Investment?

Almost every product you use daily has components that were originally beneath the ground. As Ron Phillips points out, most people don't fully appreciate the importance of the mining industry in our daily lives.

 The Pros of Mining Investment

Natural resources tie together the world economy. All human businesses depend on natural resources, and Ron Phillips emphasizes that as the supply shrinks and demand increases with global growth, prices will only rise.

 Mining investments have a long lifespan since we often still use the same resources they did 3,000 years ago, just in different ways. For example, Ron Phillips believes steel will always be necessary, there will always be some demand for oil and gas, and gold will always be valued.

 Additionally, Ron Phillips believes reduced supply means more potential profit for the most successful mining firms. The demand for natural resources is rising exponentially due to the growing global population. This is because natural resource consumption per person rises as economies develop. For example, the average American utilizes eight times more natural resources per person than the average Indian, but India is catching up quickly.

 Furthermore, the price increases result from rising demand and limited supply in the mining sector. For example, palladium has recently overtaken gold, silver, and platinum to become the most sought-after of the four precious metals due to its limited availability and rising demand.

 The demand for cars fueled by gasoline (which use palladium for pollution control) has soared as the popularity of diesel vehicles (which use platinum) has waned. Catalytic converters, which help transform toxic pollutants in car exhaust into carbon dioxide and water, account for 85% of all palladium use.

 The Drawbacks of Mining Investment

Despite the benefits, Ron Phillips notes that mining can be a challenging process, which makes analyzing mining investments particularly challenging. When comprehending PFS (pre-feasibility) reports vs. DFS (definitive feasibility) reports, and NI-43 101 reports, it can be difficult to understand the complex jargon used in the mining sector. But don't let it discourage you. Ron Phillips thinks you can learn enough to conduct your own research and make wise financial decisions with a little patience and concentration.

 In addition, information may not be as accessible as you want it to be. Retail investors frequently lack access to the brokerage research reports that institutional investors pay for. Because of this, Ron Phillips believes retail investors can be at a disadvantage if they aren’t careful to look at independent information rather the company sponsored publicity.

 However, Ron Phillips believes that among these drawbacks, the market's high volatility is the most crucial aspect to consider. Globally, over 3,000 junior mining companies are listed on exchanges, and more are continually being created—some excellent, some less so. In contrast, there are less than 50 large mining businesses worldwide. It is obvious that not all juniors can grow to this size. Though some will succeed, the majority will fail or stagnate.