Investment Dichotomy to specific characteristics of Mining sector
Mining is a very complex and varied enterprise and has always fit uncomfortably into any standard industry investment models. Risks are not unique to the mineral industry; however it is in the area of risk that most mineral industry investments differ from standard investment models. Industrial enterprises sell products with well-defined characteristics into markets for which a market value can be readily assigned. Markets for mining products are far from well defined; geological characteristics are different in every deposit. Ores and intermediate stage products contain different amounts of impurities which often have value to specific customers. The fully competitive equilibrium which is assumed in the greater portion of economic work does not characterize many mineral commodity markets. It appears easier for the public to relate to industrial companies, perhaps due to familiarity with products and issues which surround those types of industries.
Private Equity Investment in Energy and Natural Resources
Private equity fund investment is for those who can afford to have capital committed and locked in for long periods of time and who are able to risk losing significant amounts of money. These disadvantages are offset by the potential benefits of annual returns which range upwards of 30% to 40% for successful funds. The application of conventional models to understand risk and return, and the actions which follow from them, must be made cautiously. Financial investments opportunities exhibiting low risk and low return form part of a continuous spectrum through to higher risk and higher return; hence the choice for a higher return opportunity is synonymous with the choice for higher risk.
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