Investing in ASX mineral explorer shares

Mineral exploration companies are highly speculative investments. If they discover a mineral deposit, their share prices can skyrocket overnight – but if they don't, their prices can plummet just as quickly.

Two miners dressed in hard hats and high vis gear standing at an outdoor mining site discussing a mineral find with one holding a rock and the other looking at a tablet.

Image source: Getty Images

What are ASX mineral explorer stocks?

Mineral exploration is the process of actively searching land for valuable mineral deposits. It usually involves collecting and analysing rock and dirt samples to determine their mineral content. 

More complex exploration activities include drilling to search for mineral deposits located underground. The goal for mineral explorers is to find a large enough mineral deposit to establish a commercially viable mine.

These deposits could be precious metals like gold, silver, or palladium. But they could also consist of industrial metals like copper or zinc, used in construction and other industries. 

A third group of metals – rare earths – are becoming increasingly sought after for their use in electronics, such as smartphones, and include minerals like neodymium and europium.

It's important to remember that searching for mineral deposits in a particular area doesn't guarantee a company will establish a mine there. If the company doesn't find a large enough mineral deposit before its cash runs out, it must either raise more funding or pack up and go home. And if it's the latter, the company's shares will quickly become worthless.

Why invest in them?

Although investing in mineral explorer stocks can be incredibly risky, the potential rewards are astronomical.

For example, Sandfire Resources Ltd (ASX: SFR) shares were listed on the ASX back in 2004 and spent the first few years on the exchange trading for around 10 cents. 

Then, in 2009, Sandfire uncovered one of the highest-grade copper deposits in the Asia-Pacific region at the DeGrussa site in Western Australia. By the end of 2010, its shares were trading at close to $8, and it has grown into a diversified mining company with operations across the globe.

Top mineral explorer shares on the ASX

Many junior mineral exploration companies are tiny micro caps, like Aruma Resources Ltd (ASX: AAJ) or Buxton Resources Limited (ASX: BUX), both with market valuations of under $20 million. Aruma is searching for gold and lithium, while Buxton is seeking nickel, copper, gold, iron, and graphite.

Some more established ASX mining companies also have exploration projects. These can be a good option for investors seeking potential growth upside from new discoveries but without so much risk. Some of the largest of these companies are listed below, based on market capitalisation from high to low.

Rio Tinto Limited (ASX: RIO)A global mining company with copper and gold exploration projects
South32 Ltd (ASX: S32)Spun off from BHP in 2015, has a portfolio of early-stage exploration projects
IGO Ltd (ASX: IGO)Nickel and lithium miner with exploration investments

Rio Tinto

The second-largest mining company in the world – after ASX-listed BHP Group Ltd (ASX: BHP) – Rio Tinto is best known as a producer of uranium, copper, and iron ore. However, it also owns the Winu copper and gold exploration project in Paterson, Western Australia.

Drilling has shown evidence of gold mineralisation nearby – however, studies continue with only a fraction of the area explored.


Originally spun out of BHP Billiton in 2015, South32 has a diversified portfolio of mining assets. It produces aluminium, copper, lead, silver and manganese, among other commodities. 

But it also has an extensive pipeline of exploration opportunities – including copper, zinc, and nickel projects in Australia and Peru, a copper project in Alaska, and a silver, lead, and zinc project in Mexico.


IGO is focused on discovering and producing the raw materials required for clean energy technology, like the lithium hydroxide used in rechargeable batteries. In addition to lithium, IGO also produces nickel, copper and cobalt from several projects in WA.

IGO has recently revamped its exploration strategy. The company has invested heavily in a portfolio of new projects and claims to have built a market-leading exploration team. It is currently on the lookout for copper and nickel, with feasibility studies and exploration projects underway at sites dotted around the country.

What to look for when buying shares in mineral explorers

There is currently a lot of uncertainty in the world. Although it seems like the worst of the COVID-19 pandemic may be behind us, interest rate hikes implemented by central banks to curb runaway inflation are making conditions tough for junior companies. Plus, there are ongoing supply chain issues to deal with.

And if all that wasn't enough, conflict in Europe and tensions between China and the West raise the possibility of trade wars and could further exacerbate supply shortages, driving more volatility in commodity prices. This presents both challenges and opportunities for exploration companies, whose fortunes almost entirely depend on the value of the minerals they discover.

Environmental concerns and the transition to renewables present possible opportunities and risks for mineral explorers. Certain minerals commonly used in green energy production – like lithium, cobalt and copper – will likely be in high demand. However, new miners will also have to adhere to new and more strict environmental regulations and protocols when establishing mining projects, which can increase costs. 

All this makes it especially hard for new investors to decide which mineral explorers will make the best potential investment. If you are looking to invest in mineral explorers, understand which metals and minerals might be in high demand in future and target companies with highly prospective exploration projects for those commodities.

If you can afford it, try investing in a few different exploration companies so you aren't entirely dependent on a single company's success. Diversifying your investments is the best way to lower your risk.

Pros and cons of investing in ASX mineral explorer shares

The obvious benefit to investing in ASX mineral explorer stocks is the potential returns on offer. Companies like Sandfire began their lives as highly speculative microcaps and rewarded loyal shareholders with incredible returns.

Unfortunately for investors, nobody has a crystal ball, so picking the right mineral exploration companies to invest in is challenging – and requires a healthy dose of luck. For every Sandfire, there are dozens of failures, making it likely that you'll sometimes lose the money you've invested in mineral explorers.

This means investing in ASX mineral explorer stocks isn't for everyone. They are highly speculative investments that carry plenty of risk. You should only consider investing in mineral explorer shares if you have a reasonably high-risk tolerance. 

Even then, you would be wise to commit only a small portion of your portfolio towards them – and nothing you can't afford to lose.

Are ASX mineral explorer shares right for you?

Mineral explorer stocks can be very risky investments. But if your share strikes gold – literally – the potential returns can be enormous.

As discussed earlier in this article, a good option for investors seeking some of the upside from mineral discovery without as much of the downside risk is to invest in a more established miner that also owns exploration projects. Because these companies already have other profit-generating assets, it makes them less reliant on the exploration project's success to sustain their business.

Before investing in any ASX mineral exploration shares – or any speculative investments in general – you should carefully consider how you would feel in the (quite likely) event that you lose a lot of your money. If that would cause you a great deal of anxiety and make it difficult to pay your bills, then you probably shouldn't invest in them.

This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a 'top share' is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a 'top share' by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.

Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.