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Re: FIRE Buys Ice
Hi Pete,
Just adding my two cents here. When buying stocks of mining companies, you are correct in the sense that buying the correct type of metal mining company is part of the battle, but you also need to watch out on how the mining company conducts its business.
Some mining companies hold large reserves under ground, so when the metal increases in value, that company's reserves increases as well. So the value of its inventory increases, making the company worth more. That should be a stock price driver.
However, some companies, after they have extracted the metals, sell it at a predetermined contract price instead of spot price (which makes sense because they want to lock in prices/revenues). The more the contracts are locked in at a previously established lower rate, the less income that company will make as compared to the increase of the price of the metal. Extraction costs are mostly fixed, and as long as market price / selling price exceeds extraction costs + management costs, the company should do well. How well they do, depends on how they sell the metals. So that is the Net Income part driving the stocks price as well.
Not much of a help, but hopefully it adds another piece of information for you.
Originally posted by RebbePete
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Some people (cough, cough) would say mining stocks would be a way to leverage the price of gold, however, that gets complicated. Mining stocks (as many have pointed out here) are, in fact, "stocks" and subject to the same forces affecting any stock.
I (chagrin on my face, staring at my shoes, voice suddenly strangely quiet :rolleyes
bought into some junior miners on the Canadian TSX Venture exchange. Although the price of gold is up slightly, the TSX Venture exchange as a whole lost about 80% of its value, the mining stocks along with it. :eek: Fortunately, I only had a small portion of my portfolio in it.
- Pete
I (chagrin on my face, staring at my shoes, voice suddenly strangely quiet :rolleyes
bought into some junior miners on the Canadian TSX Venture exchange. Although the price of gold is up slightly, the TSX Venture exchange as a whole lost about 80% of its value, the mining stocks along with it. :eek: Fortunately, I only had a small portion of my portfolio in it.- Pete
Just adding my two cents here. When buying stocks of mining companies, you are correct in the sense that buying the correct type of metal mining company is part of the battle, but you also need to watch out on how the mining company conducts its business.
Some mining companies hold large reserves under ground, so when the metal increases in value, that company's reserves increases as well. So the value of its inventory increases, making the company worth more. That should be a stock price driver.
However, some companies, after they have extracted the metals, sell it at a predetermined contract price instead of spot price (which makes sense because they want to lock in prices/revenues). The more the contracts are locked in at a previously established lower rate, the less income that company will make as compared to the increase of the price of the metal. Extraction costs are mostly fixed, and as long as market price / selling price exceeds extraction costs + management costs, the company should do well. How well they do, depends on how they sell the metals. So that is the Net Income part driving the stocks price as well.
Not much of a help, but hopefully it adds another piece of information for you.
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