Mining stocks refer to equity or shares in companies involved in the speculation/exploration, extraction and/or primary and secondary processing of metals and minerals. Shares in companies involved in the supply of equipment and services related to the mining industry also fall into the general category of mining stocks.
The mining industry is closely intertwined to the supply of global commodities of which there are dozens, from the more well-known ores vital for development, such as iron ore (vital for steel production), to precious metals such as Gold. The recovery of petroleum, when extracted by means of excavation also falls under the broader category of mining stocks.
The mining sector is traditionally one of the most volatile due to the unpredictability of commodity prices. These may be affected by everything from natural disasters to geopolitical tensions and general market conditions, to which mining stocks are typically more vulnerable.
Another contributor to volatility and higher levels of risk associated with mining stocks is the combination of speculation and upfront investment necessary to make new discoveries. Speculation includes not only the possibility of the presence of the ore or metal in any new property held by a mining company or explorer, but also its potential to make a profit i.e., the amount of material available factored by the cost of extraction.
Upfront investment generally must allow for extensive research, as well as equipment and licensing. A closely related problem is the amount of time - often several years, at least - to complete the front-end of the process. Environmental concerns, including public opposition against from local residents can also adversely affect projects, delaying or even rendering projects unfeasible.
Individual mining projects have a limited life span. Put simply, once the ore is gone, the project cannot continue. On the other hand of the volatility stakes, rich or larger-than-expected discoveries can generate incredible increases in share prices that would be nearly impossible to duplicate in other market sectors.
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