(In our previous posts, we discussed what attracts people to invest in mining towns and the risks that come with mining town investment. To conclude this series, we discuss here how you can mitigate your risks should you, too, decide to jump in.)
So you think that you are ready to look at jumping on board the mining town investment wagon. Let’s consider a few things that you can do to minimise your risk.
First up, make sure you’re cut out for it! If you’re not going to sleep at night investing in a mining town, then don’t do it!
Next, choose the type of town that suits your risk profile. If you’re a little bit weary of the pure mining town in the middle of nowhere then look at the lower risk options in the large regional centres. A lot of these large regional centres have shown good, strong and consistent growth over time and present a great opportunity. Obviously you won’t see the extreme rental yields that some people focus on when investing in mining towns, but you won’t see the risk either.
Look for multiple projects and companies. Diversifying your risk is always a sound investment principle and one that applies here as well. Look for an area that has multiple projects and mines nearby and if possible, being conducted by different companies or groups. Investigate the projects, what size they are in terms of financial investment and personnel. Investigate what stage the projects are up to and what the expected lifespan of the mine is.
Look for locations where projects have multiple ore deposits or materials being mined. Coal mining, coal seam gas, liquified natural gas, iron ore and so forth.
When analysing your expected growth and returns make sure that you run some ‘what if’ type scenarios so that you understand what the numbers might look like if things go pear shaped. You want to make sure that you are proceeding without your rose coloured mining glasses and you understand what you entry point and exit points are and know your contingency plan if things don’t pan out as you had planned.
The key thing here is to do your research and don’t take it for granted that because rents are up and everyone is jumping on the bandwagon that it’s the right place for you. You are the person making the decisons and so you should avail yourself of the best knowledge available move forward being comfortable with those decisions.
Are you interested in investing and would like some assistance? Feel free to get in contact, I’d be happy to help.