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Last week, on 09 April 2013, we published an article under the headline “Mining Stocks Make Major Gains.” In that article we cautioned that “It’s going to take a steady stream of good news from the mining companies and commodity pricing in general for the F3MNG index to pass the 20,000 mark, which it has done three times in the past 12 months.”
Well, it only took six days for everything to change, with a perfect example of “what goes up must come down.” Following is a list of companies featured in the 09 April article, comparing their share price activity on that day versus today. Every one that gained six days ago fell today.
|
09 April 2013 |
15 April 2013 |
||||
| Company | EPIC |
Up |
To |
Down |
To |
| African Barrick Gold | (LSE:ABG) |
2.74% |
202.60 |
9.38% |
172.20 |
| Anglo American | (LSE:AAL) |
3.01% |
1,931.50 |
4.20% |
1,573.00 |
| Antofagasta | (LSE:ANTO) |
2.47% |
1,015.00 |
6.42% |
948.00 |
| BHP Billiton | (LSE:BLT) |
2.85% |
1,931.50 |
3.70% |
1,822.50 |
| Eurasian Natural Resources | (LSE:ENRC) |
4.08% |
257.00 |
4.73% |
237.60 |
| Glencore | (LSE:GLEN) |
3.75% |
355.45 |
5.50% |
325.10 |
| Hochschild Mining | (LSE:HOC) |
4.82% |
280.50 |
7.68% |
242.70 |
| Kazakhmys | (LSE:KAZ) |
4.11% |
388.00 |
8.20% |
343.90 |
| Kenmare Resources | (LSE:KMR) |
5.46% |
29.85 |
3.58% |
28.29 |
| Lonmin | (LSE:LMI) |
5.19% |
288.00 |
7.22% |
258.30 |
| Petropavlosk | (LSE:POG) |
4.91% |
206.00 |
26.21% |
137.70 |
| Randgold | (LSE:RRS) |
1.70% |
5,385.00 |
8.51% |
4,536.00 |
| Rio Tinto | (LSE:RIO) |
3.74% |
3,102.20 |
4.30% |
2,948.00 |
| Vendanta | (LSE:VED) |
4.34% |
1,108.00 |
3.13% |
1,115.00 |
| Xstrata | (LSE:XTA) |
3.58% |
1,070.50 |
6.16% |
978.80 |
Most investors understand that mining and energy stock have a higher degree of volatility than other sectors. This is a good example, not of simply one company, but of an entire sector moving in one direction, then moving in the opposite within a matter of days. In fact, if you will notice, at the time of publication, all but one of the shares has dropped below last Tuesday’s mark.
The point that I want to make here is that one week does not a month make. Nor does one month a year make. And for mining companies, one year does not a breakthrough. Unless you want to end up in a room with padded walls and getting a heavy daily dose of Valium, stay away from volatile stocks like these, unless you are serious about being in for the long haul and you don’t get nervous riding roller coasters. I can assure you that, in most cases, it is going to be an up and down ride.
Like a roller coaster, there can be thrilling heights and frightening plunges, but it’s at the end of the ride where exhilaration takes over. When deciding to invest in the mining sector, study the projected potential of the actual mines, but also take a bit of extra time investigating the executive and operational team as well as the company’s record of returns. Consider the geo-political environment of the mines and ensure that the company is being conservative in its projections, especially relative to the cost of operations to extract minerals or ores they are after. You should also do some in-depth study into projected demand and supply. Having a reasonable grasp of that, which, for sure, is speculation in itself, can make huge difference.
When acquiring mining stocks one should look under the bonnet more than at the streamline shape of the car. Don’t strap yourself into this roller coaster unless you are ready to ride it over every rise and fall, and stick with it until it brings you safely to your destination. It can be nerve-wracking around some bends, but, if you stay strapped in, at the end of the ride you’ll probably want to do it again.
