4 Common Mistakes to Avoid When Choosing Mining Stocks

If you are planning to buy some mining industry stocks, it is wise to do your due diligence so that you don’t fall for clever marketing hype geared at luring unsuspecting investors into pouring money into a risky company. Here are some specific issues to investigate with respect to a company’s mineral exploration activities.

Geological Potential

A mining company needs to base its exploration activities on sound science rather than on speculation. It is therefore vital for you to confirm that the company you wish to invest in invests in exploration and can provide proof of geological indicators for the prospects that they are pursuing. If the jurisdictions in which they are exploring show geological potential, put a check on that specific box and evaluate the other issues on your checklist.

The Legal Environment

With competent management and proper laws, a mining company’s exploration activities can yield the expected results while the same cannot be said for a jurisdiction with unclear or inconsistently implemented laws.

An appropriate legal framework is like a well-paved highway. As you select which mining stocks to buy, find a company whose operations are based in jurisdictions with well-laid permitting processes, a history of laws that support mining activity and relatively low bureaucratic requirements.

The Political Environment

In some jurisdictions, policies can suddenly and drastically change based on who wins an election. For example, when a leader who is against mining gets elected as president, he or she can quickly nationalize all mining operations to the detriment of the affected mining companies.

It is therefore wise to sieve out those mining companies which don’t operate in jurisdictions where there is rule of law and government policies are stable. Otherwise, buying stocks in a company operating in jurisdictions rife with corruption or where the political system is volatile means you are taking on way too much risk.

Infrastructure and Labor

It is desirable that mining exploration takes place in an environment which has suitable infrastructure, such as gridlines, road networks and trained labor to execute the exploration activities. If such infrastructure is lacking, a forward-looking mine can make plans to be the catalyst that spurs development in the jurisdictions where it operates. This can be a great way to win the support of the local communities.

When you identify a mining company whose activities check all the boxes above, you will have moved a step closer to ensuring that your money is safe and that you will get a return on your investment. A company of interest that you can look at while studying the factors above in operation is Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR). They specialize in the production of uranium and vanadium, both of which are categorized by the U.S. federal government as critical minerals.

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