How Mining Companies Prosper During Recessions

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Finding Bright Spots When the Economy's Down

The US & Canada’s GDP is dropping and we’re all but confirmed to be in a recession.

But it’s not all doom and gloom, something cool happens in recessions – some mining companies actually do really well.

While other businesses are struggling, these companies can sometimes hit the jackpot, and if you’re an investor - you could be amongst them.

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⛏️ Precious Metals: The Go-To in Tough Times

When the economy's rough, precious metals like gold and silver often become superstars.

Remember the 2008 financial crisis? Gold prices went way up, and so did the stocks of companies like Barrick Gold and Newmont Corporation.

And silver? It jumped from about $13 per ounce to nearly $50.

In the lead-up to the 2008 financial crisis, the price of gold was trading at around $800 to $900 per ounce.

As the crisis unfolded and economic uncertainty increased, the price of gold surged. By September 2011, it had reached an all-time high of over $1,900 per ounce.

Today, Gold is sitting around it’s all time high at $2,028 USD/OZ.

This isn't new. Every time the economy dips, metals have a habit of shining brighter.

For mining companies, tough economic times can open up some great chances. And if you're investing? These companies might help you stay steady when things are shaky.

But why do people go towards these sorts of investments during a recession?

Well, there’s two main reasons:

1. Safety in Uncertainty: People buy gold during recessions because it's a safe investment that holds its value when the economy is uncertain.

2. Protection Against Rising Prices: During recessions, central banks may implement policies like quantitative easing, which can lead to currency devaluation and rising inflation. Gold is seen as a way to preserve purchasing power because its value tends to rise as the value of paper currencies falls.

📉 Lower Costs = Bigger Profits

Recessions can actually be good for mining companies in another way, too. Their costs can go down.

Fuel gets cheaper, and they often spend less on salaries. This can lead to bigger profits, even if they're not selling more rock.

In past recessions, this has happened a lot. Big mining companies often report spending less and making more (profit) than expected.

So, if you're looking at mining companies to invest in, remember this. When times are tough, these companies might be quietly doing pretty well, often the financial statements can provide an inside look at this.

🤝 Buying and Merging

Recessions can be a sale for strong mining companies. They look out for deals, buying smaller companies that are struggling.

Look back at the 2008 recession. Chinese mining companies went shopping around the world. They bought lots of assets cheaply, which paid off later. China’s mining business is currently the largest in the world.

In 2018, Barrick Gold merged with Randgold Resources. Then in 2019, Newmont Mining bought Goldcorp. Both of these monsters grew even bigger.

Look for these types of deals in the upcoming months of 2024.

For investors, watching these deals can be key. They show which companies are getting ready to lead when things get better.

⚠️ Challenges to Face

Not all mining companies have it easy in recessions. Historically, those dealing with metals like copper or nickel might struggle more. These metals depend a lot on how industries are doing, which can slow down in tough times.

Luckily for these companies, Copper & Nickel are still going strong in the green revolution.

Debt can be a big problem, too. Companies with debt might find it hard to keep up when money is tight, and often accrue bills that can’t be paid for months - especially junior mining companies who rely on outside funding for cash.

Again, financial statements should give you insights on whats going on behind closed doors.

📈 The Long Game

So how can you capitalize on these often overlooked but opportune times? Should you buy the first gold mining company you hear about or dive into a lithium deal because you like Tesla?

No.

There’s far too many poorly managed and worthless mining companies out there - you still need to do your homework.

Check out their history. Companies that have done well in past recessions are often good at adapting and saving money.

Reveiw management. Are they transparent in their decision making or are you always asking yourself what’s next? Often being left in the dark is a bad sign.

Diversity is important. Companies working with different metals or in different places might be safer bets.

Keep an eye on companies that invest in new tech and green practices. They're not just saving money now; they're getting ready for a brighter future.

For those who dig a little deeper, there are often good opportunities to be found.

👋 Colton, Stock Monster.

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