The junior mining sector has been known to see massive gains over time due to being focused on the exploration and development stages of the mining cycle. Junior miners are companies with smaller market capitalizations that explore and drill for natural resources such as base metals and precious metals. While major mining companies are more established companies that have already discovered and are in the process of extracting valuable minerals from the earth. Typically, junior miners act as an exploration pipeline for majors who are looking at acquiring mineral projects to put into mine production. Junior miners are the ones to watch out for as they can be an opportunity for early-stage investors. We have some tips on what to look out for when diversifying your portfolio with junior mining stocks.
With the demand for critical minerals such as precious and base metals on the rise, many industries rely on these commodities to grow and scale. Investing in junior mining stocks can be a lucrative venture. However, junior miners are typically viewed as risky investments as junior mining companies are usually in the exploration phase and don’t necessarily have a proven track record for success. Historically, demand for gold has been correlated to increasing inflation, thus being a hedge against inflation with investors flocking to cash in hard commodities like gold and silver. According to Bloomberg Intelligence, the global market will face deflationary measures in 2022, with predictions of gold reaching US$2,000/oz. As inflation continues to rise this could lift the hedge against gold for the short-term and could increase more investments for the long-term, showing the precious metals sector could have a run-up more specifically in gold. Investing in any company is a risk and doing your research ahead of time to understand those risks are vital.
Advancements in Technology
Advances in technology have made it easier than ever for investors to track and analyze data from hundreds of companies in a multitude of industries. The enhanced technology in the sector has sparked a boom of activity among junior miners in the exploration phase. Junior miners can benefit from high levels of flexibility and access to new technology, allowing them to scale up quickly and offer high-risk-reward investment opportunities. Many companies also develop innovative technologies, like extraction methods or safer ways of doing things. Because they are often less established than major miners, junior miners face greater risks and require much more investment upfront—that’s why it pays to do your homework before investing.
Junior mining projects are based on research and have become more streamlined than ever before. Mine construction starts only after a deposit has been discovered using sophisticated exploration techniques, followed by technical studies and mining feasibility studies. Through each stage of the mineral discovery to the extraction phases, more detailed engineering data is required. The speed at which an operating mine comes to fruition is mainly due to advancements in technology and a competent management team at the helm.
Access to early-stage investment
There are two main ways for early-stage investors to gain access to junior mining companies. One way is by investing through a private placement, which gives an investor access not only to an investment but also a vote at annual general meetings and other forms of representation. These investments are made by high-net-worth individuals or groups of investors and tend to be on longer timelines than most people would like. The second would be going through rounds of financing with smaller companies and institutions. Most investors looking for opportunities with small-cap juniors look at their potential, not their current value.
Demand for Precious Metals
Gold and silver demand has been increasing for several years now, but that may not always be the case. The current economic climate is creating a lot of uncertainty, especially when it comes to financial stability. To plan your investment portfolio carefully, you’ll want to look at market trends over time. Gold and silver typically perform well during inflationary periods, and gold has been known to be a hedge against inflation.
Furthermore, there are many industries that rely on the metals industry such as clean technology, healthcare, automotive, and defence sectors. As these industries require metals for their resources to build and perform their jobs the demand has always remained a constant. Metallica Metals currently explores for gold, silver, platinum, and palladium in the Thunder Bay Mining District, one of the most attractive exploration districts in Canada. Most notably Metallica Metals is one of the largest mineral claimholders in the Marathon and Thunder Bay North areas. The Company’s properties are located adjacent to other precious metals projects currently undergoing some of the largest exploration drilling programs in Canada. This includes the Richview Pine project which is in close proximity to Generation Mining’s Marathon deposit and shares similar geology at the margins of the Coldwell magmatic complex, and the Starr Gold-Silver Project located in close proximity to Goldshore Resources’ Moss Lake Gold Project and Kesselrun Resources’ Huronian Gold Project.
Junior mining companies are a great way for investors to get in on a new mining project in the early stages before it takes off. You may see the run up on a junior mining stock after a feasibility study is completed for a project. However, often a junior miner will sell the deposit to a major miner and continue exploration elsewhere. This tried-and-true method allows junior miners to build an exploration pipeline that then feeds the major miners in the long-term. For junior mining stocks this is big risk but high reward. In conclusion, there are risks involved with investing in junior mining companies, and investors may be wary of putting their money into them, however, understanding the current market trends and the technical information will allow an investor to make a more educated investment decision.
FAQ’s
What are the best junior gold mining stocks?
Gold prices have been on a tear lately, so it’s no surprise that gold-mining companies are back in vogue. Unfortunately, there are myths and misconceptions about investing in junior gold miners. Investing in junior gold mining stocks is a high-risk, high-reward strategy. Looking for junior mining companies that are working on a promising exploration project and are spending a significant amount of capital on exploration and drilling are things to look for.
Are junior mining companies a good investment?
Mining companies come in all shapes and sizes. Junior miners’ stock can make great long-term investments, but they are not something to be rushed into buying. If you’re interested in investing in mining companies, it pays to educate yourself before jumping into any company—whether it’s a large or small player. Speak to your investment advisor before making any investment decisions.
How do junior miners eventually make money?
Junior miners will make money several ways, one is through what is called primary production. Mining companies produce and sell raw commodities like gold, silver, or copper. Another way junior miners make money is through streaming-and-royalty contracts. These contracts are transactions where mining companies sell future production or revenues in return for an up-front cash payment.
How do you value a junior mining company?
As with any stock, it comes down to fundamentals. Are they able to raise money and spend it on exploration and drilling? Does their management team have mining experience and a great track record of success? In other words, can I trust that management are going to continue their successes into the future. There are three things to consider when evaluating a junior mining company:
- Technical Reports
- Ensuring the projects have a NI 43-101 technical report that may report resources, reserves, mining feasibility results, etc. These technical reports help determine the value of the deposit and whether it makes economic sense to go into production.
- Valuation Model
- Evaluating the business model and understanding if the junior miner is using all the assets they have in the ground.
- Company Website
- Ensuring the management team and board of directors have had experience in building successful exploration projects and mines. Another source of information is a Company’s MD&A and financial statements and news releases. This will give you better insight into their operational expenses and economic feasibility of their exploration activities.
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