Mining Companies Going Forward: Where’s the Potential?
A friend of mine recently asked me a question that many others might be asking as well: why do mining companies swing so often from optimism to pessimism?
If we take a look at how the mining companies have reacted to price over the past few years, we can see just why there’s so much volatility.
Like any rational person, the people who run mining companies want to maximize revenues and earnings; that’s their main investment strategy. As the prices of commodities increase, each individual firm looks to produce greater quantities to take advantage of higher prices.
This seems like a solid investment strategy—except that if each of the mining companies has the same idea, the net result ultimately is an increase in supply to a level that’s greater than the market can handle—which depresses prices.
Obviously, we can’t have mining companies work together to set prices; that’s called collusion and it’s illegal. But as a potential investor, you want to see the management of these firms take a pragmatic view of the environment.
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