These ‘rise and fall’ clauses protect business to a degree from cost increases, by rebasing margin according to fluctuating costs in the price of labour, materials, or any other nominated factor. “Miners can’t control the whims of the world economy that shifts currencies and commodity prices, but if you’re a mining services company in a long-term contract, the ‘rise and fall’ clauses are laid out.”
“The overall investment risk is lower for the mining services companies and there’s a number of reasons for that – firstly, mining companies tend to have less control over pricing,” he says. While the long-term thematic for the mining sector is believed to be a positive one on the back of the global decarbonisation thrust, Argonaut’s Ian Christie believes there are several reasons why mining services stocks hold a few advantages. However, while mining companies tend to both bear the brunt when commodity prices soften and capture the margins when they go through the roof, services plays are insulated to some extent as mines will continue to roil the dirt when commodity prices drop. Investing in small cap mining services stocks can be considered a risky move given their exposure to the never-ending commodities boom and bust cycles, but it can also be a potentially lucrative one if you catch them at the right time.Īs derivatives of underlying mining activity, mining service providers are leveraged to their clients’ production volumes (ore hauled) and activity (exploration or development).
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