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.
