You need to understand the business you invest in. Everything about the business of mining is risky – and the real magic trick of investing in the space is being acutely, sometimes unpleasantly aware of the risks – so that you can align your capital to benefit, in spite of the risk.
Like it or not, you can’t turn away.
Mining is dirty, dangerous and difficult work – under the best of circumstances.
Much of it happens underground. You don’t have to dig more than a few feet underground before the venture becomes dangerous. Just ask anyone who has had a hole at the beach slide on top of them when the tide comes in. Every year, people lose their lives to cave-ins, explosions or unexpected hazards.
Mining safety has come a long way, but you can’t completely de-risk digging hundreds of feet underground without completely stopping most mining.
Much of it happens in problematic jurisdictions. That can mean anything from a country in a constant state of war (as we’ve seen throughout the history of central Africa), or it can mean a jurisdiction with a fickle or capricious bar for licensing or environmentalism.
Or as we found earlier this week with one of our top silver positions: it can mean dealing with criminal/terrorist groups who notice a whole lot of money coming out of the ground.
We were saddened to hear that a Mexican cartel was involved with kidnapping and killing workers from one of the companies we cover. As far as I’m concerned, the only people who have any responsibility for those deaths are the members of the criminal cartel.
Being invested with this company, as owners, is sometimes unpleasant to think about. But we didn’t kill these men. We are owners because we believe in the project. We believe that mining precious metals is a net positive for the world – and a profitable, moral venture.
Most of the world’s silver comes from Mexico. At the end of the day, if you want to profit from mining silver, exposure to Mexico is unavoidable whether you like it or not.
I’m telling you all of this as a full disclosure of the dark side of the business.
I’m telling you, because without this information, you are not going to be prepared for what’s likely or possible when you own shares of a miner.
Being aware of the downside is way better than being blindsided by it.
Now, there are places with relatively miner-friendly governments, or that don’t have any criminal or terrorist threats to speak of. There are mines that are mostly surface level deposits, which don’t require deep underground drilling.
You would probably not be surprised to learn that MOST mines don’t fit any of these criteria, let alone all.
The bottom line: if you want to profit from mining, you have to follow the money and go where the metals are found. Most of the time, that means going to places that are hostile along one or more vectors.
An even lower bottom line: sometimes you have to hold your nose and buy when everyone else is in some way disturbed.
At times, it means buying during a correction when scared money is fleeing the trade. Sometimes it means buying bad news – because you know the end-game will be a net positive.
I know it’s hard to make this decision, but the very difficulty is what separates successful investors from the rest…
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio