From one perspective, an investor may think that massive stimulus spending will drive the dollar down and base metal prices up, while from the opposite perspective an investor may think that the Federal Reserve’s statements of a stable inflationary situation dictates that interest rates will remain stable and base metal prices will go down. Herein lays the quandary that the investor needs to consider. To hedge with a stable investment, that will likely remain a solid investment over time regardless of circumstance, or to ignore a hedge as the world economy works through its current circumstance.
Whichever direction the investor chooses there are considerations for thought. Among these thoughts are: which base metals work to advantage, which are used where and how and what is required to get the product out of the ground quickly and to market with least cost. Each of these considerations must be understood and analyzed.
From the start, base metals at the top of the “heap” might be considered as gold, copper, platinum, palladium, silver, nickel and lead. Past these more known base metals there are quite a few others of lesser known make-up but no-less profitable in many ways.
At the small cap level, one must first consider the capitalization of the company. Generally this is because they are exploratory companies working to find and develop a mine site. One must also consider governmental regulations, regional differences, cultural differences and the costs associated with infrastructure. The first and last of these being the most problematic.
Most small cap base metals mining companies start from the very beginning. They need permits and acceptance from local authorities. Generally this takes time and money along with a team that can smooth local officials. Investing from the beginning means a much longer return cycle but also a larger return for those that can afford to wait. Next, one will need to be able to watch capital go out the door with little if any return as the company explores for the mineral. Assuming a base metal is discovered in appropriate quantity, the real capital expenditure begins: infrastructure. Equipment needs to be brought in, roads need to be built to support the equipment, buildings of many types need to be constructed and a labor force needs to be developed.
Given the nature of the beast of this last issue should always be considered. Although there are other considerations, the most important remaining involve intangibles: water removal, market flux and the price of the dollar. Staying with the project is the key if the investor has the wherewithal. Small cap mining is not for the short-term investor but can be very profitable.