Things You Should Know Before Investing in an Exploration Company

Companies that explore have the aim of finding new mineral deposits. These firms are often privately owned and are funded through venture capitalists and individual investors. They employ engineers, surveyors and cartographers to locate mining areas. Finding a large mineral deposit can result in the rapid expansion of an exploration firm because they will have access to capital to further develop its activities.

Most mineral exploration companies are small to medium-sized corporations that have less than $10 million in yearly revenues. They are mostly privately owned and don’t trade stocks on an exchange. Information on them is thus less readily available as compared to other kinds of corporations. There are a few publically traded exploration companies.

Because it starts production only once new projects are identified and put into operation, the mineral exploration industry is a niche of the economy. So, in contrast to traditional industries like manufacturing or service that produce their products regularly mineral firms produce their goods in spurts.

Exploration company earnings are susceptible to fluctuations in the price of commodities due to the industry’s cyclical nature. Because of factors like Chinese economic expansion, weather conditions that can affect yields of crops, and the requirement for petroleum items for transportation, commodity prices can be volatile throughout the year.

The revenue of exploration companies can fluctuate significantly over the course of a year due to fluctuations in commodity prices.

During periods of large demands for natural resources, exploration firms are often short of capital because they incur massive expenditures but have only seasonal revenues. Venture capital is much more likely in these periods, which can help keep exploration companies operating while prices for commodities rise.

Due to the nature of the industry most exploration companies are not publically traded.

The Mineral Exploration industry is closely associated with other resource-based industries such as oil and gas production, coal mining, and metals & mining. Most companies involved with mineral exploration also operate other resources.

The diversification of firms helps them be less vulnerable to fluctuation in the price of commodities because they aren’t dependent on a single type of resource. However, the distinction between minerals usually is made based on inferred or speculative grade resources which means there isn’t any drilling yet.

Companies often need to do additional exploration to convert the inferred or speculative grades into indicated or measured resources, or reserves. Both are essential for any mining activity. This kind of work is typically carried out by junior exploration companies that specialize in early-stage mineral exploration.

The mining of minerals requires massive upfront capital investment that can be extremely dangerous for exploration firms since they cannot be sure to locate valuable minerals. A company can expend significant amounts of money on pre-production expenses after the ore body has been discovered. These include designing the mine, and buying long-term materials.

It is crucial to weigh the cost of exploration against the potential revenue it will generate as it may take many years before the mineral resources is transformed into a functioning mine. Numerous companies have formed partnerships with larger companies who can finance high-cost projects to make them operational as part of this joint venture. The advantage for junior exploration firms is that they can concentrate on early stage mineral exploration while partnering with larger players who are capable of financing development projects.

Many factors determine the success of mineral exploration firms and their ability to find equity investors and obtain financing from large financial institutions or mining companies. Because it could fund the project’s early stages of exploration, as well as development, junior exploration companies need this source of capital.

If you are looking to learn more, click gold, silver and copper exploration

If an economic ore body is found and production costs are able to be fully covered, there’s likely to occur an initial public offering or sale of shares to raise more capital for the construction of a mine. If there’s no market for the company’s shares on any stock exchange, it may decide to file for bankruptcy, or be taken over by a mineral exploration firm with more attractive prospects.

High-grade copper deposits are some of the most sought-after materials in mining because they can yield high returns from little amounts of ore. Copper is usually extracted from deposits of high-quality but low-grade which contain just 0.3 to 0.7 percent copper metal weight.

There are two kinds of mining companies: large or junior exploration companies. They differ in the sense that the former focuses on massive, capital-intensive mining projects that have proven and steady reserves (e.g. bauxite production and the production of alumina) in contrast, those of the former focus on exploration activities and highly-risky resources (e.g. gold and diamonds).