Things You Should Know Before Investing in an Exploration Company

An exploration firm is a business which’s goal is to locate new sources of mineral deposits. Individual investors and venture capitalists often finance these companies, which are generally privately owned. These companies employ engineers, surveyors and cartographers to identify mining locations. The discovery of a significant mineral deposit can result in the rapid growth of an exploration company because it can access capital for development projects in the future.

The majority of mineral exploration firms are small to medium-sized corporations that have less than $10 million in annual revenues. Most of them are privately owned and do not have stocks traded on exchanges so information about their activities isn’t as easily accessible as other types of corporations. There are a few publically traded exploration companies.

Since production begins only when new projects are identified and launched The mineral exploration business is a niche in the economy. Thus, unlike traditional service or manufacturing industries which produce their goods on an ongoing basis, mineral companies produce their goods in spurts.

Because of the cyclical nature of this industry, exploration company revenues are extremely dependent on fluctuations in commodity prices. Prices for commodities can be extremely variable and fluctuate in a wide range throughout the year because they are influenced by a variety of factors such as Chinese economic growth, weather conditions which alter crop yields, and demand for petroleum-based goods for transportation.

Due to the varying fluctuations in commodity prices, revenue for exploration companies can vary substantially from year to year.

When there is a large demands for natural resources, exploration companies typically lack capital due to huge expenditures but only revenues. When this happens, the sector is more likely to draw venture capitalists, which could keep exploration companies in business until prices of commodity rise.

Most exploration companies are not listed on the exchange because of their nature as an industry.

Mineral Exploration is closely linked to other resource-based industries like oil & gas production mining coal, mining of metals. The majority of companies that are active in mineral exploration also have production operations in other sectors of the resource.

Diversification of businesses can help them reduce their exposure to fluctuations in commodity prices because they are not dependent on just one kind of resource. However, the distinction between minerals usually is based on speculative-grade or inferred resources, which implies that there isn’t any drilling done yet.

Many companies require additional exploration to convert the inferred or speculated grades into indicated or measured resources, also known as reserves. Both are necessary for every mining endeavor. This kind of work is typically carried out by junior exploration firms who specialize in mineral exploration for the early stage of exploration.

The mining of minerals requires massive upfront capital investment which are extremely dangerous for exploration firms since they are not guaranteed to discover valuable minerals. Once an ore-body has been found an exploration company could spend large sums of money on pre-production expenses including the design of the mine and purchasing longer-term resources for production.

The costs of early development must be considered against the future revenue potential since it could take a long time until the mineral resource is developed into an operating mine. Many companies have partnered with larger corporations that can finance high-cost projects to get them into production in this joint venture. The advantage for junior exploration companies is that they are able to concentrate on mineral exploration in the early stages as they partner with larger players that are capable of financing later-stage development projects.

A variety of factors affect the performance of mineral exploration firms, including their ability to get equity funding and get financing from big financial institutions or mining companies. Because it could fund the project’s early stages of exploration, as well as development junior exploration companies require this source of capital.

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

If an economic ore-rich body is discovered, and the pre-production expenses can be fully funded, it will typically be possible to issue shares or go public to raise funds for the expansion or construction of a mine. If the shares of the company are not traded on any stock exchanges, the company could become bankrupt or bought by a firm that is more interested mineral exploration.

High-grade copper deposits are one of the most sought-after minerals in mining since they can make huge profits from tiny amounts of ore. Copper is mined from large, low-grade deposits that contain only 0.3 to 0.7 percent of copper by weight.

There are two kinds of mining companies: large or junior exploration companies. The primary difference between them is that the latter deals itself with massive, capital-intensive projects and resources that have established and stable reserves (e.g. Bauxite, bauxite and alumina production) however the former is focused on early-phase exploration projects, high risk projects and resources (e.g. diamonds, diamonds and gold).