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Process: Investing in an Established Mining Company

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At the present juncture, investing in gold, gold stocks, and gold mining stocks is rampant. Which brings up an important question: Why should an investor buy the stock of a gold mining company? The crux of any mining company’s success revolves around the property to be mined and the productivity of the property. To attain productivity, a number of logical and progressive benchmarks are necessary. Once these benchmarks are achieved, a mining company may be viewed as established. Essentially, the road to success involves three steps: mining, management, and politics. A brief overview of the steps is provided below. The example utilized is Pershing Gold, which, so far, fits the standard template.

Mining

A company will either refer to a property’s resources or its reserves. The difference between the two terms is important. Resources refer to the metals/minerals that may exist in the ground of a property. Neither the quality nor the quantity of the metals has been confirmed. The term reserves is used when extensive and reliable testing has taken place and the company is assured of the quantity and quality of the metals in the property. As a rule, new mines or deposits are found near or along a trend of existing mines. Initial work on such properties includes geological, geochemical, and geophysical work. Based on these results new exploration strategies are determined until drill targets are defined.

Successful exploration can result in dramatic increase in the value of Pershing Gold and is therefore of great significance to the equity markets. Once a mineral/metal discovery is made, it is important to define the size of the ore body in tons and the grade or quality, for example, the amount of gold as ounces per ton of ore. This ultimately sets the valuation of the deposit, which, in turn, affects the value of Pershing Gold and the company’s share price.

The next step involves feasibility studies. Pershing Gold has to establish the economic viability of the resource project. Engineering and financial models of the project are constructed to determine the economic return that might be expected. If Pershing Gold determines the return is sufficient to warrant the capital expenditure needed to develop the mine, then the project will proceed.

Once the feasibility study justifies the project, then access to the ore body takes place, either by open mining or underground mining techniques. Pershing Gold will need to provide support infrastructure for the project and the processing plant, transport, power, and water facilities.

At this point, Pershing Gold will begin extraction. The ore body will be removed from the surrounding rock. If the ore body is close to the surface, open mining will remove large volumes of rock to expose the deposit. Where the ore body is too deep to be exploited by open mining, Pershing Gold will construct a shaft or a decline to gain access.

The metals will require initial on-site processing. Pershing Gold would then transport the ore to a refining plant.

Management

Research reports, along with the recommendations of analysts and online newsletters usually provide information on potential mining investment opportunities. In mining, more often than not, the difference between a good investment and a poor investment rests in the hands of management.

Management teams need to be loaded with mining professionals with at least a decade or more of industry experience. This information is readily available on Pershing Gold’s website. Pershing’s team of managers has had successful top management positions with prominent, recognizable mining companies. In other words, the entrepreneurs at Pershing Gold have surrounded themselves with the right people, people who have a vision of how to run and grow their company. Pershing Gold’s goals are ambitious yet at the same time achievable.

Past experience, knowledge, and expertise are vital to establishing a successful mining company. Public presence and the ability to raise funds are two of the basic ingredients. If the basics are in place, then prospectors, small miners, and property owners will be more willing to sell and/or joint-venture potential properties with capable management.

Politics

Another important aspect to determining the viability of any mining investment is political risk. Political risk is very real but investors and speculators can add a measure of safety by making sure they invest in companies that predominantly or exclusively are in mining-friendly jurisdictions such as the U.S., Canada, Australia, and Mexico.

Even the discovery of a huge deposit might not be feasible if state or local restrictions are prohibitive. Pershing Gold’s properties are located in Nevada, which is conducive to mining operations.

Conclusion

History demonstrates that gold and silver mining companies from the late 1970s are still numbered among the greatest percentage gainers in stock market history. A solid, well-managed mining company, like Pershing Gold, that owns properties with precious metals, means profitability.

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