How to Invest in Mining stocks
- Due Diligence
- Categories and Countries
- Investment portfolio Risk management
- Investing in Mining companies
- Precious metals Portfolio allocation – Silver vs Gold
- Physical Gold and Silver ETF – GLD and SLV
- Precious metals Miners ETF – GDX and GDXJ
- Royalty and Streaming Companies
- Stock picking strategies for Mining stocks
- Gold BUGS Index
- List of Mining stocks
How much of your Portfolio should be in Precious metals
When you decide to add Gold and Silver mining stocks to your Portfolio, the obvious question becomes, "Which ones?"
After identifying a few candidate stocks there’s another question that quickly pops up, “How much of each stock should I buy?”
That question leads into Portfolio planning because we really want to allocate our Investment capital from the top down.
Within our overall Investment Portfolio we first decide how much to allocate to Precious metals.
The Precious metals portion is then divided between physical metal and Mining stocks.
For the mining stock segment of the Portfolio we select a mix of companies representing all phases of mining (exploration, development, production).
For our Portfolio planning today we can think of the phases of a Mining company in terms of risk. Explorers are on the risky end of the spectrum and producers are on the safer end.
In addition to Portfolio risk, we also want to think about Gold versus Silver and how much capital to allocate towards each metal.With just a little bit of planning we can build a healthy Portfolio of Mining stocks that will likely outperform the overall sector.
Mining Stock Portfolio
Before we pick the best Mining companies to Invest in we need to consider some high-level factors that affect our strategy.
We want to identify the geographic regions we are comfortable Investing in and determine which equity exchanges we have access to.
Structuring our ideal Portfolio of Mining stocks and related Precious metals securities involves Risk management so we’ll talk about that as well.
The Investment Matrix below shows categories of Mining stocks and possible Portfolio allocations for each category. Investments in the matrix are ordered by risk level with higher risk categories receiving smaller allocations.
Spend some time with the Investment Matrix and determine what it looks like for you given your unique Investing objectives and tolerance for risk. Don’t be concerned about ‘doing it right’, successful Investing is more of an Art than a Science.
Our due diligence as Investors involves both Portfolio planning and researching individual Mining companies.
We’ll cover Portfolio planning below, let’s first focus on what it takes to research a Gold or Silver mining company.
The best source of information is the documents that public corporations are required to file.
For US listed companies these documents are available at the U.S. Securities and Exchange Commission Company Search Page
Documents for Canadian listed companies can be found at SEDAR Search for Company Documents
Look for these documents “MD&A” (Management Discussion and Analysis), “Annual Report”, “Technical report (NI 43-101)”, “Financial statements/report”.
This is the type of information we want to discover about a company before we Invest our money:
- Current assets – producing mines, near-production-ready projects
- Mineral Reserves and Resources – remaining mine life
- Experience level of management team
- History of steady drilling programs to expand Reserves
- Opportunity to cut cost/increase production of existing mines
- Financial resources - money in bank or access to credit
- Potential catalysts for the company to be re-rated by Investors
Mining Stock Categories and Countries
There are hundreds of Mining stocks to pick from and they fall into multiple categories: explorers, developers, junior producers, mid-tier producers, major producers, mega-major producers, royalty companies, and streaming companies. ETFs are also in the mix and need to be considered.
With all these choices, which category is best?
Another factor to consider is that within each category there are companies mining all over the world: South Africa, Tanzania, Turkey, Russia, China, Japan, Australia, Argentina, Mexico, Peru, Canada, United States, etc.
Which countries are best? Which countries should be avoided?
We’re going to answer all of these questions shortly, but first we need to talk a little bit about Portfolio planning and risk.
Investment portfolio Risk management
Conservative Investors typically diversify their Portfolio and allocate funds to a mix of assets based on their personal goals and tolerance for risk. Financial planners tend to advise a mix of stocks and bonds with the percentage of each varying based on the Investor’s age.
A retirement-aged Investor is going to make different choices than a 30-year-old building her first Portfolio. Risk management is critical for both individuals but their Investing horizon effects how risk is minimized.
When it comes to Gold and Silver mining stocks, the conservative Investor may avoid the stocks with the highest potential for capital gains because of the risk they entail. The risk-tolerant Investor (Speculator) may allocate a portion of their Portfolio specifically for these high-risk, high-potential-gain Mining stocks.
Investing in Mining companies
In a short article like this it’s impossible to cover all the bases so let’s cut to the chase and state some basic guidelines that can be applied to building a Portfolio of Silver and Gold mining stocks.
Within your overall diversified Portfolio you will allocate some percentage for Precious metals. Billionaire Investors like Ray Dalio, Paul Tudor Jones, Stanley Druckenmiller and Mark Mobius are recommending a minimum of 10%, while other Investment advisors are suggesting as much as 35%.
Within the Precious metals segment of your Portfolio you will allocate some percentage to physical metal and the rest for Investing in Mining companies (stocks of companies that mine the metals).
For physical metal, US dimes, quarters, and half-dollars minted in 1964 and earlier (“90% Silver coins” or “junk Silver”) held in your personal possession are best and likely carry the lowest premium to the price of Silver. Bullion coins like Gold Krugerrands or US Silver Eagles are possible choices, although they can carry a greater premium than other options.
Numismatic or collectible Silver and Gold coins carry a high premium over the price of the metals and are not recommended.
Refer to the allocation table below and adjust the numbers to fit your personal preferences.
After allocating funds for the physical metals which form the Foundation of your Portfolio you will subdivide the remaining funds into the three remaining types of Investments in the table below.
Type of Investment
Category of Investment
mid-tier and major producers
Emerging producers and junior producers
Explorers, options, futures
We are almost ready to pick some stocks, but there is another factor to consider: should we focus on Silver or Gold?
Precious metals Portfolio allocation – Silver vs Gold
To keep this article short let’s focus on the reasons to favor Silver over Gold:
- Silver is used in the manufacture of numerous products like cell phones, solar panels, and batteries because it is one of the best available conductors of electricity. It is also used in medical products like wound dressings and creams where its natural antibacterial properties are beneficial. Typically, the amount of Silver in any of these products is so small that recovering or recycling the metal is not economically viable. As a result of these factors there is a constant demand for new Silver and, once used, the Silver is typically gone forever. In contrast, Gold has limited utility other than for dentistry, electronics, and jewelry, and because of its cost it is used very sparingly and recycled if at all possible. As a result, most of the Gold that has ever been mined is still available today, and yet we continue to mine the yellow metal.
- The price of Silver is loosely correlated to the price of Gold. This relationship is referred to as the Gold-to-Silver ratio or GSR and for the last 50 years the ratio has spent most of its time between 40:1 and 80:1. When the ratio is high (e.g., 80:1 and above), Silver is considered inexpensive relative to Gold so Silver should therefore be favored as an Investment. When the ratio is at the lower end of the scale (e.g., 40:1 and below), Gold is inexpensive relative to Silver so Gold would be the Investment of choice. Silver is currently cheap relative to Gold.
- Demand for Silver outpaces the amount of Silver being mined every year. This supply deficit of approximately 30 to 100 million ounces per year has existed for most of the past 6 years. The deficit is filled from above ground stocks held by ETFs and custodial vaults like those at JP Morgan.
- Silver tends to outperform Gold when the metals are in a bull market like the one unfolding currently. As the price of Gold rises Silver will follow and fundamental factors like the supply deficit and correction of the historic extreme in the GSR are likely to make the percentage gains in Silver far greater than those in Gold.
- Even if you choose to weight your Portfolio toward Silver you will still have exposure to Gold. Just because a Mining company has “Silver” in its name it does not mean that Silver is their primary product. Many of the primary Silver producers shifted their focus towards Gold in the recent Precious metals bear market because it was very difficult to mine Silver profitably. One of the purest primary Silver miners, First Majestic Silver Corp, earns over 30% of its revenue from Gold.
For the reasons stated above, it is recommended that Investors overweight their Precious metals Portfolio allocation towards Silver and the companies that mine Silver.
Consider the table below and adjust the numbers to fit your preferences. Keep in mind that when you allocate funds towards Silver miners you will also be gaining exposure to Gold.
Type of Investor
Allocation to Silver
Allocation to Gold
Before we start picking individual Gold and Silver Mining stocks or ETFs we can simplify our task by eliminating the choices that don’t meet our Investment criteria.
Best Mining stocks – How to pick them
To pick the best Mining stocks we’ll start by crossing a few geopolitical regions off the list.
Understand that by doing so we are not making political statements, we are simply choosing to allocate our hard-earned money to Mining companies that operate in the safest countries.
With that said, we can cross Africa, Russia, Turkey, and China off the list.
In fact, to be really conservative, we can simply list the countries we are willing to invest in: Canada, Australia, Mexico, Argentina, Peru, and the United States.
We can further simplify our choices by ruling out Mining companies without a US or Canadian stock exchange listing. Some Investors may only have access to US listed Mining stocks.
Conservative Investors may choose to avoid penny stocks (less than $5/share) and over-the-counter (OTC) stocks depending on their tolerance for risk. Some Investors won’t have access to these higher-risk securities.
How to Invest in Gold and Silver – Portfolio refinements
As we continue the planning process for our Portfolio of Precious metals Investments we become more specific about the components.
ETFs show up twice in our Investment matrix above so we want to consider the leading Precious metals ETFs: GLD, SLV, GDX, and GDXJ.
Precious metals royalty companies (streamers) have a unique business model. They benefit from the production of Gold and Silver without taking on the expense and risk of actually developing a mine. We’ll take a quick look at this interesting micro-sector since it is appropriate for all Investors.
We’ll wrap up this section with a discussion of the Mining stock indexes and some possible stock candidates.
Physical Gold and Silver ETF – GLD and SLV
SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) are often presented to Investors as an alternative to taking physical possession of Gold and Silver.
Some of the alleged benefits are that Investors don’t have to pay for storage of their metals, don’t have to worry about the possibility of buying fraudulent metal, and don’t have to worry about having their metal stolen.
These supposed benefits are just marketing hype because one of the numerous fees these ETFs charge is specifically for storage of metals and it is questionable whether the ETFs actually hold the metal they claim to hold so fraud and stolen metals is almost baked into the cake.
In their marketing material SLV encourages Investors to believe that the ETF offers ownership of actual Silver.
Here’s part of SLV’s description: “Convenient, cost-effective access to physical silver”
While blatantly misleading, there is an element of truth in that statement. Any Investor holding 50,000 shares of SLV (approximately $1.2 million US dollars as of 1/22/2021) can supposedly take delivery of physical Silver from the Trust. Of course, the Investor would have to be an “authorized participant” to do so.
GLD doesn’t even pretend to offer Investors access to physical metal. Here’s how State Street Global Advisors describes their fund: “SPDR Gold Shares are intended to offer Investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold.”
Like SLV, it is theoretically possible to take physical delivery of Gold from the GLD trust. Investors holding 100,000 shares (approximately $17.3 million US dollars as of 1/22/2021) may be able to redeem those shares for physical metal. And again, they would have to be authorized participants first.
It is obvious that these ETFs are not an alternative to owning physical Precious metals. Investors seeking the benefits of Gold and Silver should buy the physical metals and take personal possession of them.
Physical possession of actual Gold and Silver forms the Foundation of a Precious metals portfolio.
Another aspect of GLD and SLV that makes me uncomfortable is the amount of legal language in their prospectuses.
If you’d like to see what legalese looks like, go read the prospectus of either of these vehicles. Open the links below and search on the word “subcustodian”. Both of these funds are allowed to appoint sub-custodians to hold the physical metal allegedly held in trust, and the sub-custodians are allowed to appoint additional sub-custodians. There are no requirements for sub-custodians to maintain insurance, chains of custody, or to have third-party audits of their alleged inventory.
The SLV and GLD ETFs do not offer Investors anything other than exposure to the price of Gold and Silver and that exposure is eroded by the numerous fees and expenses that the ETFs charge (management fees, custodian fees, marketing fees, and NYSE listing fees).
Another disconcerting aspect of these ETFs is the potential tax consequences. To cover their hefty fees these trusts periodically sell a portion of the Precious metals that Investors have paid for. Because they are structured as “flow-through” vehicles the tax consequences of those sales are passed on to the Investors in the trust.
Imagine how it would feel paying capital gains taxes on metals that were no longer held by the ETF you had invested in!
SLV and GLD are not recommended for any Investors because of the risks they entail, the potential tax consequences, and the question of whether they actually hold the metals they claim.
Precious metals Miners ETF – GDX and GDXJ
VanEck Vectors Gold Miners ETF (GDX) and Junior Gold Miners ETF (GDXJ) offer Investors an easy way to gain exposure to the Precious metals mining sector by providing a bundle of Mining stocks in a single vehicle.
There are no significant reasons to avoid these ETFs but Investors can likely find better returns by doing their due diligence and identifying individual Mining stocks with a high probability of outperforming the ETF and sector.
If ETFs make sense for your Portfolio, invest in GDXJ and ignore GDX.
GDX and GDXJ have a high degree of overlap so investing in both of them doesn’t make sense. Of the 44 individual Mining stocks in GDX and the 71 individual miners in GDXJ, 32 are the same.
GDXJ, the inappropriately named “junior” mining ETF, is actually dominated by mid-tier producers, although it doesn't include the mega-majors Newmont and Barrick held by GDX.
While neither of these ETFs is considered ideal for the Satori Traders Investment strategy, GDXJ is preferred over GDX because the "junior" ETF avoids the mega-major producers.
Investors specifically seeking the leverage offered by junior Miners should look elsewhere.
The real value in these ETFs is their list of component stocks. These lists provide an excellent starting point for selecting individual stocks to invest in. The rationale is that the EFT managers have performed some level of due diligence on these stocks or they wouldn’t be included in the ETFs.
With the ETF component lists in hand we can start sorting the miners into the categories shown in the table above.
There are approximately 2000 publicly-listed US and Canadian Mining companies so it isn't possible to perform due diligence on all of them.
We need an Investment theme or strategy that lets us significantly narrow this wide field of candidate stocks.
The ETF component lists suggested above are one possible Investment theme.
Mining companies with Eric Sprott as an Investor is another possible theme.
Royalty and Streaming Companies
Streaming companies reap the benefits of bringing Gold and Silver to market without taking on the risk of actually mining the metals.
They do this by playing the role of a bank, providing Mining companies with up-front capital in exchange for a percentage of the miner’s eventual production.
They also reduce their overall corporate risk by receiving metal or royalties from numerous Mining companies who are operating all over the world (multiple streams of income from diverse sources).
As an example of this reduced risk, let’s compare streaming company Sandstorm Gold to primary Silver miner First Majestic Silver (FMS).
First Majestic has three producing mines (2021), all in Mexico. Sandstorm has 24 producing stream and royalty agreements (2021) in ten different countries based on the production of 20 different companies. One of Sandstorm’s streams is based on Gold from the FMS-owned Santa Elena Silver Gold mine.
If something happens that causes Santa Elena to cease production, Sandstorm loses a minor part of the company’s overall revenue while FMS loses a significant part of its corporate revenue.
If Mexico decided to end the metals extraction industry altogether, FMS would be out of business, but again, the impact on Sandstorm would be manageable.
Stock picking strategies for Mining stocks
As we sort the Mining companies on our candidate list there are some general tips we can keep in mind:
- Investors reward growth. We want to focus on companies with demonstrated growth and the potential for continued growth. The sweet spot we want to aim for is emerging, junior, and mid-tier producers.
- Investor interest drives share prices. The most successful companies communicate their progress and results through regular press releases.
- Sector analysts will recognize and give coverage to the best companies. If nobody is talking about a Miner, there’s probably a reason.
- Investment themes like the ETF component lists or Eric Sprott companies can be an effective strategy for selecting candidate Mining stocks.
- Exploration companies are like burning matches. They shine brightly for a little while and attract Investor interest, driving their share price up. Then they tend to flame out when Investors realize it will be several years (or 10) before the exciting new discovery can actually be turned into a producing mine. Exploration companies serve a purpose but hold them too long and you’re likely to get burned.
- Mining requires access to energy, water, workers, and roads. Some mineral resources are very exciting but they will never turn into producing mines because one or more of these key ingredients is missing.
With modern accounting methods and the quarterly reporting process it is quite challenging to determine the health and future prospects of any given Mining company. Always do your own due diligence and keep this saying in mind:
~loosely attributed to Mark Twain
Gold BUGS Index
Mining stock indexes allow us to monitor the overall state of the sector as part of our Portfolio management process.
During the 1999 to 2011 Gold bull Market trend the HUI Index (NYSE Arca Gold BUGS Index) was widely followed by Speculators and Investors.
indexes and proxies also serve as the basis that allows us to analyze individual stocks relative to the overall mining sector.
This relative analysis can help us identify the best Mining stocks to invest in.
For example, we can look at a time period when the index is correcting and then identify stocks that remain strong during the correction.
These stocks demonstrate strength by not participating in the correction.
Another way we can use relative analysis is to identify stocks that are outperforming the overall index.
List of Mining stocks
Listed below are some Mining company candidates to consider as you assemble your Portfolio.
The list is not exhaustive by any means and no Investment in these companies is being recommended or implied. These stocks are just some of the current candidates on the Satori Traders watch list. As always, perform your own due diligence.
If a company has been covered on the Satori Traders YouTube channel a link is provided.
Satori Traders and its principals may have positions in the companies listed here.
Ely Gold Royalties (TSXV: ELY) (OTC: ELYGF)
EMX Royalty Corp (NYSE: EMX) (TSXV: EMX)
Mid-tier and major producers
First Majestic Silver Corp (NYSE: AG) (TSX: FR)
Fortuna Silver Mines (NYSE: FSM) (TSX: FVI)
New Gold Inc. (NYSE: NGD) (TSX: NGD)
Emerging producers and junior miners
Alexco Resource Corp (NYSE: AXU) (TSX: AXU)
Avino Silver and Gold Mines (NYSE: ASM) (TSX: ASM)
Irving Resources Inc. (CSE: IRV) (OTC: IRVRF)
Kuya Silver Corp (CSE: KUYA) (OTC: KUYAF)
Novo Resources Corp (TSX: NVO) (OTC: NSRPF)
Cabral Gold Inc. (TSXV: CBR) (OTC: CBGZF)
Condor Resources Inc. (TSXV: CN) (OTC: CNRIF)
Defiance Silver Corp (TSXV: DEF) (OTC: DNCVF)
Dolly Varden Silver Corp (TSXV: DV) (OTC: DOLLF)
Eloro Resources Ltd (TSXV: ELO) (OTC: ELRRF)
Eskay Mining Corp (TSXV: ESK) (OTC: ESKYF)
Ethos Gold Corp (TSXV: ECC) (OTC:ETHOF)
Firefox Gold Corp (TSXV: FFOX) (OTC: FFOXF)
Hannan Metals Ltd (TSXV: HAN) (OTC: HANNF)
Kalamazoo Resources Ltd (ASX: KZR) (OTC: KAMRF)
Lion One Metals Ltd (TSXV: LIO) (OTC: LOMLF)
New Found Gold Corp (TSXV: NFG) (OTC: NFGFF)
NuLegacy Corp (TSXV: NUG) (OTC: NULGF)
NV Gold Corp (TSXV: NVX) (OTC: NVGLF)
Precipitate Gold Corp (TSXV: PRG) (OTC: PREIF)
Timberline Resources Corp (TSXV: TBR) (OTC: TLRS)
Tristar Gold Inc. (TSXV: TSG) (OTC: TSGZF)
White Gold Corp (TSXV: WGO) (OTC: WHGOF)
How to Invest in Junior Mining stocks
Junior miners are the ‘Aggressive Growth’ segment of our Mining stock Portfolio.
These fledgling Mining companies make up 15 to 30% of our Mining stock Portfolio depending on individual tolerance for risk.
As micro-cap stocks (less than $300 million market cap), the Juniors are on the risky end of the spectrum so we limit our exposure to them as part of responsible Portfolio planning and Risk management.
In return for our risk we are seeking outsized returns. We’re looking for doubles and triples here with maybe a homerun or two (10-baggers).
We can accomplish this objective by focusing on the Junior mining companies that have been significantly de-risked.
By de-risked we mean the company has:
- Proven deposits (NI 43-101 compliant) in tier 1 countries
- Existing assets (e.g., processing plant, tailings facility, underground workings)
- Power, water, transportation, and personnel readily available
- Permits obtained or in progress
- Native peoples agreements, if needed, in place or in progress
- Major Investors involved
- Outstanding shares tightly-held by insiders, institutions, and major Investors
- A potential catalyzing event that could result in the company being re-rated by Investors (e.g., pouring 1st Gold bar, outstanding drill results, being acquired)
- Ample funds for current and planned operations – no need to raise funds (dilute existing stock) soon
- Projects being actively advanced towards production (e.g., executing drill and sampling programs, performing CSEM/CSAMT and magnetic-GeoTEM geophysical surveys, obtaining permits, developing production plans)
- Healthy Investor relation program announcing latest developments
We are looking for Mining companies with a high probability of being significantly revalued by Investors within the next 24 to 48 months but we want to limit our downside risk at the same time.
Instead of being the Venture capitalist we want to be the Value investor who steps up to the plate after a company demonstrates some potential.
We’ll pay a little more for these advanced-stage Miners but that’s OK.
Avoiding capital loss is a primary objective of Portfolio management so we’ll give up some potential gains in order to reduce our risk of loss.
For clarity in this discussion let’s define advanced-stage developers and emerging producers as follows:
- Advanced-stage developer: a Junior Mining company with an identified and economically viable mineral deposit – it is reasonable to assume that the company will achieve production within 48 months
- Emerging producer: an Advanced-stage developer with a reasonable possibility of reaching production status in the next 18-to-24 months
These advanced-stage developers and emerging producers are believed to be the sweet spot in the current secular Gold bull Market trend.
Not only will they benefit from a rising price of Gold and Silver, they are likely to catapult higher in price as they advance from the scores of also-ran Junior miners to the elite list of top Mining companies.
That sounds good, but how do we find the Junior mining companies that are likely to outperform?
At Satori Traders we have a number of Investing themes that we employ in our Portfolios.
For example, one of our themes is the Mining stocks included in the GDX and GDXJ ETFs. Our rationale is that the GDX/GDXJ ETF managers have already performed some level of due diligence on the stocks included in the ETF. Instead of duplicating their analysis, we use their list as our starting point and then apply our proprietary filtering criteria.
Another example of an Investment theme is the Mining stocks where billionaire Eric Sprott has taken a significant position.
By structuring our Investment Portfolios around these themes we expect to significantly outperform the broad Market during the current secular bull market in Gold.
Best Mining companies to Invest in
After planning a Portfolio and doing some research on individual companies we are finally ready to purchase some stock shares.
As a final check on our purchase decision we can ask these questions before hitting the “Buy!” button:
- Where does this purchase fit within my overall Portfolio?
- Am I investing or speculating?
- What's my exit plan?
- Have I done my due diligence on this company or am I buying based on excitement and hope?
- Is this really the best mining stock to Invest in? How many Miners have I compared it to?
If the answers to these questions aren't immediately obvious, we might stop ourselves and ask if we are really ready to put our hard-earned money at risk in the market.
Gaining clarity on these questions involves walking through the process defined on this web page:
- Determine how much of your overall Investment portfolio should be in Precious metals
- Split the determined allocation between physical Precious metals and Mining company stocks
- Decide on a target Silver vs Gold ratio for the overall Precious metals Portfolio
- Obtain physical Silver and Gold
- Identify acceptable countries for Mining stock Investments
- Split the Mining company portion of the Portfolio into segments for foundation, core, semi-speculative, and speculative stocks
Once we have a structure defined for our Precious metals Portfolio the next steps become obvious:
- Identify candidate Mining companies for Investment
- Perform due diligence on the candidates
- Select the best Mining stocks from the candidate list
Knowing how to Invest in Mining stocks successfully can be challenging for DIY Investors but the process is learnable.