Hard rock or hard luck: Mining as an investment

As we head into another exploration season, it's worth taking a minute to think about the investing side of the mining industry. A lot of Yukoners own mining stocks.

As we head into another exploration season, it’s worth taking a minute to think about the investing side of the mining industry.

A lot of Yukoners own mining stocks. When the Yukon skies are full of helicopters, and every guy in the bar is talking about the next big thing, it’s easy to get caught up in the enthusiasm. But chatter about mining investments is as cyclical as the industry itself. When markets are down, people tend not to tell stories about their investment losses.

This is the classic investing trap. There is good data that shows how regular investors tend to have more of their assets in regions and industries they are familiar with. This usually means industries close to home, even though there is no logical reason why people in Indiana should be over-invested in agribusiness or Yukoners in mining.

You might say that local knowledge can give an advantage. But, in reality, the average Indianan doesn’t really know more about agribusiness than the suits on Wall Street.

Overinvesting in an industry close to home violates the investing principle of diversification. Not only is too much of your money in one sector, but that sector is usually linked with other things in your life. As an example, say you worked for a mining contracting company in Whitehorse. If mining slumps, not only will your shares go down in value but the slowdown might cause your house price to go down or your job to disappear if your company loses contracts.

So how has the mining industry been as an investment? Some of the barroom chatter has been right. Some mining investments can pay off enormously. If you bought shares in 2002, when the industry was suffering from low commodity prices, you probably did very well. Some of the big international mining companies tripled or quadrupled in the following decade. Most major mining companies comfortably outperformed the broader market indices.

The situation has been much more challenging recently, especially in 2013. In the last five years, the iShares Global Mining Index Fund, which is a basket of big global mining companies, is down about 2 per cent. If you had invested in the S&P/TSX market index, which tracks the broader Canadian market, you would have been up 40 per cent instead.

Closer to home, what would have happened if you had invested $100 in some well-known Yukon mining companies five years ago? Selwyn, which at the time was working on the big Howard’s Pass lead-zinc project, more than doubled by early 2011. However, the company has sold its interest in Howard’s Pass and, as of last week, your $100 would have been worth about $25.

Your investment in Victoria Gold, which is trying to develop its “shovel ready” Eagle Gold project, would have been worth about $40.

Capstone, which owns the operating Minto mine, has been up over the period. Your $100 investment would be worth about $135 as of last week, less any fees you paid your friendly investment advisor of course.

If you bought in at the beginning of 2011, after shares had surged, however, you would have lost money on all three, including a whopping 90 per cent loss on Selwyn.

There are still opportunities in mining investing, of course. People lucky enough to time the market could have still made money on the ups and downs of the companies above. The best companies and the best properties can still pay off handsomely. The challenge, if you’re not a professional investor, is how to find them. And whether your source of investment opportunities is a big league broker or a guy who was talking to a guy in the Casa Loma, there are some rules of thumb you should keep in mind.

The first is that your mining investments should be part of a broader financial plan. Get some advice from a professional. You don’t want your retirement fund to be composed of random mining stocks you bought over the years.

Second, only invest money you can afford to kiss goodbye. Mining stocks, especially junior ones, can be very volatile. This isn’t necessarily bad, depending on your point of view, since they can also pay off in a big way. However, if the worst happens and your mining company goes bankrupt, it shouldn’t be money you need to pay the rent.

Third, be cautious – very cautious – about using leverage. Some people will tell you to borrow money to invest, since it amplifies your returns. It seems like a miracle. You borrow $5,000, invest it in a hot mining stock that doubles, pay back the loan and you’ve made $5,000 for nothing.

Of course, if your stock collapses instead, you haven’t just lost money but are $5,000 in debt.

It has been a tough couple of years for mining investors. With some stocks so low, there may even be buying opportunities. As much as we want our local mining companies to succeed, however, it will take a bold investor to buy now.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Channel 9’s Yukonomist show or Twitter @hallidaykeith

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

The Many Rivers Counselling and Support Services building in Whitehorse on March 28, 2019. Three people who sat on Many Rivers’ board immediately before it closed for good say they were relieved to hear that the Yukon RCMP has undertaken a forensic audit into the now-defunct NGO’s financial affairs. (Crystal Schick/Yukon News file)
Former Many Rivers board members relieved to hear about forensic audit, wonder what took so long

Three people who sat on Many Rivers’ board immediately before it closed… Continue reading

Whitehorse General Hospital in Whitehorse on Feb. 14, 2019. The Yukon Employees’ Union and Yukon Hospital Corporation are at odds over whether there’s a critical staffing shortage at the territory’s hospitals. (Crystal Schick/Yukon News file)
YEU, Yukon Hospital Corp. at odds over whether hospitals are understaffed

YEU says four nurses quit within 12 hours last week, a claim the YHC says is “inaccurate”

Two former Whitehorse Correctional Centre inmates, Ray Hartling and Mark Lange, have filed a class action against the jail, corrections officials and Yukon government on behalf of everyone who’s been placed in two restrictive units over the past six years. (Joel Krahn/Yukon News file)
Class action filed against Whitehorse Correctional Centre over use of segregation

Two former Whitehorse Correctional Centre inmates have filed a class action against… Continue reading


Wyatt’s World for Oct. 21, 2020

Movie poster for <em>Ìfé,</em> a movie being shown during OUT North Film Festival, which includes approximately 20 different films accessible online this year. (Submitted)
OUT North Film Festival moves to virtual format

In its ninth year, the artistic director said this year has a more diverse set of short and feature films

Triple J’s Canna Space in Whitehorse on April 17, 2019, opens their first container of product. Two years after Canada legalized the sale of cannabis, Yukon leads the country in per capita legal sales. (Crystal Schick/Yukon News file)
Yukon leads Canadian cannabis sales two years after legalization

Private retailers still asking for changes that would allow online sales

A sign greets guests near the entrance of the Canada Games Centre in Whitehorse on June 11. The city announced Oct. 16 it was moving into the next part of its phased reopening plan with spectator seating areas open at a reduced capacity to allow for physical distancing. (Crystal Schick/Yukon News file)
CGC reopening continues

Limited spectator seating now available

During Whitehorse city council’s Oct. 19 meeting, planning manager Mélodie Simard brought forward a recommendation that a proposed Official Community Plan amendment move forward that would designate a 56.3 hectare piece of land in Whistle Bend, currently designated as green space, as urban residential use. (Courtesy City of Whitehorse)
More development in Whistle Bend contemplated

OCP change would be the first of several steps to develop future area

EDITORIAL: Don’t let the City of Whitehorse distract you

A little over two weeks after Whitehorse city council voted to give… Continue reading

Whitehorse City Hall. (Joel Krahn/Yukon News file)
City hall, briefly

A look at decisions made by Whitehorse city council this week

Northwestel has released the proposed prices for its unlimited plans. Unlimited internet in Whitehorse and Carcross could cost users between $160.95 and $249.95 per month depending on their choice of package. (Yukon News file)
Unlimited internet options outlined

Will require CRTC approval before Northwestel makes them available

Legislative assembly on the last day of the fall sitting in Whitehorse. Yukon’s territorial government will sit for 45 days this sitting instead of 30 days to make up for lost time caused by COVID-19 in the spring. (Crystal Schick/Yukon News file)
Legislative assembly sitting extended

Yukon’s territorial government will sit for 45 days this sitting. The extension… Continue reading

Today’s mailbox: Mad about MAD

Letters to the editor published Oct. 16, 2020

Most Read