DISCLAIMER: The following article only states my opinion on precious metal stocks and does not constitute any financial advice. I am NOT an investing professional in the investment services sector. Financial liability falls on the individual investing to conduct due diligence on the stocks they trade.
Going Beyond Physical
There's something to be said about holding physical precious metals. The way it glitters under light. The weight you can feel. The enduring ping they make when they strike together. Most importantly, the security you feel KNOWING that it is a real asset in your possession.
But as wonderful assets as they are, there are some limitations that could occur if you had to sell them. You're limited to your local market (unless you can mail them), not everyone recognizes their worth, it takes some time to sell them (you either have to search for a buy or travel to a place you know will buy them). I love my physical assets, but as they generally only follow the COMEX/London fix spot price, there is another way to invest in metals to help diversify and gain some net worth.
Not Doom and Gloom
First of all, I'm assuming the equity markets continue trading and there is no societal breakdown. I understand if the worst were to really happen, equity markets won't really be worth anything and physical holdings rule. But in the meantime, let's consider a little diversification in your holdings. PM (precious metal) stocks can increase in multiples of spot price increases as mines become more profitable depending on their production levels. It opens you up to a global market and the stocks are usually easy to trade, so if you need to liquidate, you can sell your positions in the comfort of your bathrobe using your smartphone.
Characterizing PM Companies
For all intents and purposes in this article, I'm going to lump these companies into three categories: Major Producers, Royalty Companies, and Small Cap/Explorers.
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Major Producers: These are the big players in the space, they produce the largest quantities of PMs and often have stake holdings all throughout the world.
I don't invest in many major producers. They are well followed by big institutional traders and index funds. While their share prices will obviously rise in a PM bull market, it will likely be far less dramatic, so these kinds of miners will bring some stability to your portfolio. I only own one major producer: Barrick Gold (ABX). As of 12/13/17, they closed at $14.11. For what it's worth, George Soros has invested some big bucks (by my standards) into this company.
Also, I've enjoyed holding Newmont Mining for a number of years. NEM trades for $35.75 right now.
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Royalty Companies: This category of companies is probably my favorite among the group. In my opinion, they have the least amount of risk and the least amount of overhead. Essentially, these are mining finance companies. Say you are a small-time mining company and want to get your project off the ground. Mining projects can be very expensive and you'll likely need additional financing to get the project started. Royalty companies pick and choose which projects they want to get involved with and they will lend money to the small miners in exchange for interest, a share in the mine, or a percentage of production...or any combination of the three. So they lend out the money and take little risk (because they have analyzed the project and only take on the best prospects) and as a result, often get an income stream equal to a percentage of the mine's future production!
Wheaton Precious Metals (WPM) is recognized as one of the best in this class. They have taken on some great projects and focus primarily on silver. Their price at closing today was $21.61.
Seabridge Gold (SA) another on of my favorites. When gold starts to rise, they tend to see the effects of that rise fast. They were taken down a few notches over the last few years, but remain a primary player in this space. Their price was $10.25 at today's close.
First Mining Finance (FFMGF) is a new player to come along. But even though they have only been around about a year and a half, don't let that scare you...they have some of the smartest minds in the industry at their helm. Keith Neumeyer chief among them. They currently trade at $0.43, but I expect they will be a $20 stock some day in the not too distant future.
There are two companies that I don't currently own, but they are understood to be the big dogs in this class...Royal Gold (RGLD) and Franco Nevada (FNV). Honestly, I was very interested in jumping into RGLD a few years ago when they dipped down to $29, but I was hoping they would drop farther and they never did. They are trading at $84.66 now. FNV is a similar story...they are at $77.09 right now. Both are great companies, just a little too rich for my blood at the moment.
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Finally, Small Cap Junior Miners/Explorers.
These guys are the most speculative plays, but with the greatest risk comes the greatest rewards. These small operations are nimble and can adapt quickly, but their finances are usually limited. If they happen to discover a great deposit with substantial reserves, then they could easily be acquired by one of the majors or develop it themselves. Making a quick premium when they sell their operations is pretty appealing. For these plays, it is often best to spread out the risk among mutiple companies so if any do go bankrupt, hopefully the others will make up for the loss with significant gains. Some of my holdings here include:
First Majestic Silver (AG) - Headed by Keith Neumeyer and at $7.35, a great value.
Fortuna Silver Mines (FSM) - $4.87
Pan American Silver Corp (PAAS) - $15.13
Pretium Resources (PVG) - $10.66
Gold Standard Ventures Corp (GSV) - $1.49
Or, to gain exposure of a LOT of the junior miners, you can buy into the Vaneck Vectors Junior Miners ETF (GDXJ) for $31.58 per share.
There are a lot of options out there, but you need to do your research so you don't get involved with some fly-by-night operation. The miners have been suppressed as long as the PM spot prices (down some 80% off their ~Aug 2016 highs), so now is an excellent time to snatch up a few shares of your favorite companies. If you manage to build some positions for yourself ahead of the upcoming PM bull market, you could find yourself with some very healthy returns when all is said and done. I've personally been using them as a hedge against a market crash, which is coming, make no mistake about it.
Again, I'm not an investing professional and I take zero responsibility for your investing decisions. Nothing in this article should be construed as advice or recommendations of any sort. Future gains can not be predicted from past results and all that crap. Don't blame me for any losses, but I'll happily take the credit for any of your gains.
Good luck out there!
-Randomness
