1 Metric You Need to Know Before Investing in Minershttp://www.fool.com/investing/general/2014/03/17/1-metric-you-need-to-know-before-investing-in-mine.aspx Joshua Bondy
March 17, 2014
Have you ever heard of the Herfindahl–Hirschman Index (HHI)? A concentrated industry has a high HHI and is more likely to be an oligopoly. In this case what is bad for consumers is good for investors. A high HHI means more stable pricing, more resilience during a downturn, and higher margins -- ingredients for a good long-term investment.
The HHI helps explain these trends. Iron ore has a higher HHI than aluminum, manganese, nickel, and copper. This high degree of concentration lets BHP Billiton use the seaborne iron ore trade to stabilize the company and generate big profits.
The other side of the HHI coin
Reports from January show that China boosted its rare-earth exports by 161.8% year over year. China's export boom helped send Molycorp's quarterly margin plummeting to its recent level of -156.2%. With a total debt-to-equity ratio of slightly more than 1, Molycorp is stuck between a rock and a very hard place.
Seaborne iron ore and market share