skip to Main Content

What kind of mining stocks should you invest in? Explorers, Developers, Producers, Project Generators and Royalty-Streamers?

This article explores the different kinds of mining companies you can invest in, based on their development stage or business mode.The mining process begins at the exploration phase and ends at the production phase if a commercially viable project can progress through a myriad of hurdles. 

It is estimated that less than 1% of exploration projects are successful in progressing to production, so it is important to understand what the various phases are in the mining process and the inherent risks associated at each stage. 

As a mining project progresses through these phases more risk is mitigated at each phase (can be extreme at the exploration stage and high at the production stage).

Explorers

Mining exploration is an extremely hit and miss business. Explorers are typically very small companies (often just a few staff) whose job it is is to either identify a completely new, unknown resource (greenfield explorer), or to further drill out an area where a resource estimate has been made with a view to adding more resource to the estimate (brownfield explorer). The final goal in the exploration process is to generate a technical report with documented resources deemed sufficient to move the project to appraise its economic viability.

Things to keep in mind when looking at explorers as investments:

  1. How active is the company in drilling out the resource? If a miner hasn’t embarked on a drilling campaign in years it might be worthwhile finding out when the next one is scheduled
  2. How much cash does the company hold in order to undertake further drilling, without having to raise money, either by issuing more share capital or going into debt. Many explorers simply raise money when funds dry up by issuing more share capital, which dilutes the worth of current investor’s holdings.
  3. How much experience does management have in progressing exploration projects – either to a sale of the property to a developer, or to progress the project to development and ideally production.

Developers 

A mining developer has identified a resource and has either determined that the resource is expected to be able to be profitably extracted from the ground, or is working towards the same outcome via a preliminary economic assessment (the least detailed feasibility report), a preliminary economic assessment (the next detailed level of report), a definitive feasibility study, or at best a bankable feasibility study, which is a particularly detailed analysis of how much money a mining project is likely to make.

Once the mining developer is confident that  the project will be profitable, it can either elect to sell the project to another miner if lacking the working capital to begin the permitting and build stage, or they can source the required funding to commence building the mine to production stage.

Things to keep in mind when looking at developers as investments:

  1. At what stage has feasibility been achieved? A PEA has a much higher margin or error than  a  PFS, which has a higher margin of error than a DFS etc etc
  2. Based on management experience are the likely to be able to source the funds to build a big plant with all of the required infrastructure, permitting, plant, roads/transport etc
  3. Buying into a project where the mine is already being built can significantly de-risk the project and provide a faster pipeline to rewards, however there is still no guarantee that the mine will be profitable
  4. If the resource being mined reduces in market price then the project may no longer be economically viable

Producers 

Mining producers are typically defined as having achieved production, ideally commercial production, or are ramping up to commercial production. Producers successes are linked strongly to the cost of mining the resource, the market price at which they can sell the resource, and the free cashflow that they can generate to maintain their resources and reserves ie: keep the mine pumping.

Prospect Generators

Prospect generation is an interesting and flexible type of mining business that can mitigate alot of the exploration risk. They essentially generate potential target areas for future mines.   These organisations  will find  land, and conduct exploration activities from channel sampling to airborne studies.  They do this to determine if  is any potential that warrants further exploration.

When a Prospect Generator concludes that it has found something promising  it looks for a JV partner.  This partnership typically includes an earn-in agreement  the partner may make an up-front payment, as well as pay for  drilling and further exploration work.

 This business model means the project generator isn’t burdened by the project’s construction cost and can embark on other early stage projects. Many prospect generators therefore carry a large number of projects at any point in time, which reduces exploration risk by increasing the chances of having one or more or many successful projects “on the books”.

Royalty Streamers

Metals streamers purchase a percentage of the company’s future production at a fixed price below market value. This provides immediate cashflow to the mining company and secures same at a predictable price.

Royalty generators are similar to prospect generators as above, only they don’t limit themselves to early stage projects.

  • Online Chat Terms of Use

    Mining stocks are extremely risky and volatile investments that can result in severe financial loss. Only invest with money you are prepared to lose

    TrueWidth Chat is optimised for one on one discussion. Private one on one conversations are not moderated however flaming, baiting, trolling, use of abusive, harassing or inappropriate language or spam made either publicly or privately will result in permanent account termination

    We do not endorse or vouch for the accuracy or authenticity of postings

    Postings are at best general information, not professional investment advice prepared by taking into account any individual circumstances and needs of particular investors. Seek professional investment advice before choosing to make any investment decisions

    No-one is permitted to make postings as a licensed investment adviser or as a representative of a licensed advise. Posting of 3rd party stock analyst reports are not permitted

    If you hold a particular stock please disclose it on the public board when posting

    Through use of this chat tool you also agree to our site terms and conditions below

  • Is this your company? Please contact us for more information regarding upgrading your listing.

  • Back To Top
    Mining Stocks Community

    Checking you aren't a robot

    Thank you for visiting TrueWidth.com. Please action the below to continue browsing our site. We apologise for the inconvenience.