Invest in Mining Cautiously

If you’ve been watching the headlines, you may have noticed a number of news stories in the last year about precious metals mining operations scamming millions out of unsuspecting investors. Sometimes these companies owned land but had no intention to mine it, sometimes they were mining but not as much as they claimed, and sometimes they didn’t exist at all. They all were making money off investors who hoped to strike it rich as the price of gold continues to rise.

This is one scam that almost makes sense. After all, the gold price has risen for 12 straight years, and experts predict that it will continue going up as central banks keep printing money. Mints and gold sellers all over the world have seen huge spikes in sales. All of this must mean that gold mining companies are raking the cash in hand over fist. Right?

Unfortunately, while there are certainly fortunes to be made in the mining industry, not every mining venture is a surefire success. Choosing the right mining company to invest in takes careful research and/or the help of an expert.

In the latest edition of the London Bullion Market Association’s quarterly newsletter, Jamie Sokalsky, the CEO of Barrick Gold Corporation – one of the largest metals miners in the world – lays out the current state of affairs in the mining industry. He shares a number of reasons why precious metals mining is not always as profitable as one might expect, in spite of gold’s ongoing bull run.

Among the various challenges faced by mining companies today, Sokalsky emphasizes the maturing nature of existing mines – especially in North America and Australia. These older mines simply don’t produce as much, or produce inferior grade ores. Meanwhile, new projects often have to look towards much more remote areas, which just makes development that much more expensive. Sokalsky writes:

“This industry is like a supertanker. It takes a long time to stop or change directions. You cannot turn on a dime. Most projects that are built right now, or are in advanced construction, will not be affected. However, the outlook for growth in supply in a few years looks more and more under threat. Thus, the supply of gold is likely to be lower going forward. We are not going to see huge growth, even if the gold price goes up considerably. That should then be supportive for the gold price and ultimately result in a healthier industry.”

As Sokalsky points out, the mining industry isn’t in dire straights. Rather, mining operations just have to be that much more careful about how they operate and invest their capital. Ultimately, the demand for gold isn’t going anywhere, and where there is demand, there are profits to be made.

If you are willing to expose yourself to the risks, and get advice from financial advisors or brokers with experience in mining companies, there are great opportunities to be had.

Personally, though, if someone comes to me with the opportunity to get in on a new gold mine at the ground floor, I’m going to pass. I don’t have the stomach or the money for those risks. I’d much rather stick with a more conservative, but simpler solution: buying physical gold. I know it’s a safe bet no matter which mining companies do well in the coming years.

To Read Sokalsky’s Full Piece, click here

 

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