The problem with picking which mining stock to invest in is that you really need to know something about mining or you need to be getting advice from someone that does. Unfortunately most of the analysts out there covering companies like BHP and RIO do not have any qualifications in disciplines such as mining engineering or geology, and for me that is like having a stock broker tick-off the pre-flight checklist on an aircraft I am just about to fly in. He might be a smart guy, but personally I would prefer someone who knows about aeroplanes up in the cockpit thanks.
“A good man always knows his limitations” said Harry Callahan in Magum Force, and although I am not suggesting I am a good man, I do at times know my limitations. One of the areas that I swallow my pride and admit I am in the dark is when in comes to mining companies. Yes I can look at the company financials, balance sheets etc. and make sense some sense out of them (sometimes) but when I start reading the mining reports I start to lose my way.
Normally if I get into trouble when trying to understand a company I would start digging into the various research and analysts reports but more often and not, these are written up by people with economics and business degrees. These analysts might be able to crunch numbers but they probably know less than I do about the nuts and bolts of mining.
A while back I foolishly followed a mining stock tip from one of those investor newsletters/websites that I had signed up for and not long after I found myself holding shares in a gold mining company that was going under, while at the same time gold prices was steadily rising. How could this happen I thought? The reason was that although the stock buy recommendation was from a team of “value investors” who had crunched the numbers and thought they has spotted a winner, they really did not understand mining and the company they suggested simply did not have quality mining operations.
After that little experience I decided to look for a way to invest in mining while at the same time try and make sure I was diversified a little, because even good mining companies can get into trouble. Mining is a risky business and even a great mining company can get into strife if mines flood, shafts collapse or they cause environmental problems etc. After some research I found what I was looking for; a Listed Investment Company (LIC) that manages a portfolio of mining stocks spread across the world and across various commodities types. That company was Global Mining Investments Limited. (ASX.GMI)
At this point I should stress that I have an interest in a portfolio that contains GMI shares and that I am seriously looking at picking up some more GMI shares for this portfolio. So please keep this in mind and remember I am just highlighting this stock in order for people to do their own research if they wish, I am not suggesting anyone buy GMI stock.
According to the company’s website the main benefits to investors from investing in GMI is access to:
- a globally diversified approach to investing in resources;
- commodities, geographic regions and companies that are not available through investing only on the ASX
- listed and pre-IPO resource companies; and
- the investment management expertise of the natural resources team at BlackRock Investment Management (UK) Limited, based out of London.
For me the attraction of GMI was being able to invest into a mining focused portfolio that included stocks not traded on the ASX. In addition the portfolio of stocks is managed by a team at BlackRock Investment Management in the U.K and within this team are people who hold degrees in mining geology and mineral exploration.
As of 31st January 2009 the top 10 investments in the portfolio were:
BHP Billiton Limited
Impala Platinum Holdings Ltd
African Rainbow Minerals
Anglo American Plc
As you can see, the portfolio of mining stocks they manage is spread across the globe and includes a few gold miners for all you gold bugs out there.
Of course mining stocks have not escaped the stock market plunges of the past year as the chart below shows GMI has been sliding downhill from around mid 2008 when the commodities supercycle started to look not so super anymore.
Global Mining Investments (GMI) 2 Year Chart
(click on the chart for a larger view)
Now I doubt we are going to witness a spectacular rise in mining stocks across the board, but it seems to me having a basket of quality larger sized mining companies in a portfolio is probably not a bad investment option if you are investing for the long haul. You could of course in theory put a GMI like portfolio together yourself and save on the management fee, but this is a little tricky when many of the stocks do not trade on the ASX.
Anyway as always please do plenty of your own research and feel free to let me know your views on mining stocks and commodities in general. Maybe investing in commodities and miners is not a smart thing to be considering at the moment?