Should You Buy Mining and Exploration Stocks?

There are many exploration companies listed on ASX and on many other exchanges. Exploration companies are high risk stocks as no one knows if they are going to find something or not, whatever the company is exploring for, they should find good grades with good amount of resources. Most exploration companies are not making profit and it takes years to get to production stage as the company would require necessary approvals and permits after finding good amount of resources. There is a short term stage where traders may be able to make money, however I believe its a gamble and very risky.

The short term stage I am talking about comes before and after drill results. So when an exploration Company starts drilling and announces that drilling results will arrive during particular time period, then traders normally starts buying before drill results then volume and share price both normally starts going up. Some traders takes profit before drill results arrives as they don't want to take risk and some takes risk and waits for the results. If the drills results comes good then share price will jump and then traders takes profit and if results comes bad which is highly likely then you will see a blood bath. Even after arrival of good results the share price will start dropping and it will end up where it was before, unless company is keep getting good results. Normally it takes 3-6 years to get to production stage. Even any times share price doesn't go up before drill results.

If you do not want to take too much risk then you should stay away from exploration companies and invest in profit making

companies who are already producers. Before you invest you need to check the market and future expects of that particular industry. You need to read the balance sheet before you invest. You need to check debt and assets ratio, last 5 years earnings if it's going up or dropping, Read chart to see if the share price is continuously dropping from last 1-3 years or recently. Diversification of your investment is most important to do proper risk management. Hopefully these tips helped you to gain some knowledge about investing.

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