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Tips in picking good mining stock investments

Some investors find physical gold investment very expensive, so they invest in mining stocks to get exposure in gold. While there’s no substitute for investing in wealth via the precious yellow metal, mining stocks can generate a good amount of dividends if you know how to choose a good company.

Investing in physical gold for wealth purposes has always been the choice of veteran investors. Physical gold never loses its merit as a tradable commodity, and the long-time secret of Germany’s strong economic position. In a news article by BullionVault, it was discussed that investing in physical gold lets investors use geography to spread the risk of losses — something that gold mining stocks cannot do. Germany’s original reason for holding gold in the vaults of US, UK, and France was due to fear of an invasion from the Soviet forces. While that fear has long been gone, geopolitical diversification still makes sense in case of a sudden invasion.

While there’s no way to predict the future of a mining company, you may lessen your chances of losing resources by knowing which ones have a bright outlook. Here are a few things to keep in mind as a gold mining investor.

Pick companies with low operational costs

Gold mining companies that generate a huge amount of gold every year doesn’t necessarily mean profitable in the long run. While quantity is important to gain profits, a company with low operational costs is king.

In 2013, a lot of mining companies suffered huge losses because of high operational costs and gold’s worldwide price slump. Gold prices in June 2013 were at a 3-year low, fluctuating only around $1,180 per ounce.

Look for companies with newly-discovered technology in making mining costs cheaper. AngloGold Ashanti is very attractive right now, what with their new discovery of a mining technique called Reef Boring.

Don’t underestimate the power of small gold mining companies

A lot of investors say that small companies are risky. However, little do most of them know that investing in the big ones are a tad bit riskier.

First of all, small companies are easier to manage because they have fewer projects. This means that they are able to focus all their energy and resources on small-scale mining operations and address problems quickly and cost-efficiently. On the other hand, bigwigs of large-cap companies manage a lot of mining sites around the world. While this yields a lot of quantity, they spread themselves too thin most of the time. If a problem arises (gold prices suddenly declining, no more gold to extract etc.), imagine how much work and money big companies need to shell out in order to minimize the damage in operations.

Secondly, large companies tend to focus on numbers on a quarterly basis, due to the criticisms they have to face from major news sites. When big mining companies do this, it could lead to short-term decisions that aren’t usually good for investors.

Remember, don’t always choose what everyone else chooses. Always check the mining company’s track record, if its operational costs are low, and if they’re focused on small-scale mining operations. While companies with operations around the world can be very profitable, sometimes, it’s better to stick to the “slow and steady” ones given the volatility of the precious yellow metal.

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