It's no secret that gold miners aren't very well liked. And junior miners can be seen as the sector's pesky little brother that everyone really can't stand.
Yes, we are talking about the small exploration, development and production miners... the ones far off of Wall Street's radar. But while everyone else is happily ignoring them, you might want to seriously consider doing the exact opposite.
You see, when gold and silver take off, the big miners will definitely profit. But it's select junior competitors that could see the really big gains.
We've seen it happen before, and it will happen again. We're talking about gains of 100%... 150%... 200%... and even more!
That's because they have so much more room for growth and potential.
Now, you don't want to buy every junior miner you come across. You need to be very selective. Extensive research should be put into any prospect before you invest in it. And then, when you think you've researched it enough, do a little more.
Unlike with the big guys in the field, junior miners can come and go fairly easily. So you want to make sure you've separated the potential titans of tomorrow from the flash-in-the-pan types.
To do so, there's a whole list of factors to consider. Here are the three most important...
There's nothing more important in evaluating the potential success of a junior company than management. End of story.
Companies can have the best deposits in the world with veins of gold as thick as your thumb sticking out of the ground. But if they don't have good management teams, don't bet on them.
These people must be competent. To establish this, it helps if they already have a successful track record. A small, close-knit group that's done this sort of project well before can do it again. And again.
Management also has to be able to show its game plan and answer the following questions:
Another important consideration is that management is hiring the right people. We don't want to hear a company call itself a uranium explorer but tell us that all of its geologists used to work on gold projects.
Especially beware of management teams that use their companies like piggy banks. We mean those that keep issuing more shares - thereby diluting what you hold - to finance not only new deals and ongoing projects, but also their fat-cat lifestyles.
Location! Location! Location!
Here's a dirty little secret: All mining companies are, in a sense, real estate companies. And the best "real estate” to find gold is where gold has already been found. Or at least right next door.
That's why some very smart miners have staked claims next to each other along the prolific Carlin Trend in Nevada... why some of the best Canadian juniors are all over the Abitibi gold belt that runs from Ontario to Québec... and why their counterparts in Mexico are busy scouting out areas that have been utilized since the conquistadors' day.
Location will often tell you what kind of gold or silver deposits you'll find. Do neighboring companies have good recoveries from the gold they discover or do their findings have "interesting” metallurgy? Chances are, if they recover only 60% of their ore's gold, the miner next door will have the same luck.
Of course, just because a company is in a good location doesn't mean it will absolutely succeed.
We've heard of a mining CEO standing next to someone on a hillside right next to Barricks' (NYSE: ABX) huge Pueblo Viejo Mine in the Dominican Republic and tell them that Barrick should buy his little project.
But that's a dream that never came true.
He is not a liar. It's just that miners are dyed-in-the-wool optimists. They have to be. Otherwise, they wouldn't get out of bed in the morning.
That brings us back to good management. A project has to be able to survive and thrive on its own. And it's your job as an investor to separate the dreamers from the doers.
Bad Things Can Happen to Good Companies
You can have the best, most experienced mining team in the world for a company with incredibly rich finds. Yet things can still go wrong that sink the company.
Political risk, for one, is a big issue. Let's say the country a miner is operating in suddenly changes the rules, legislating that such business have to pay big export taxes on top of big land-use taxes.
Or a nongovernmental agency decides to shake the company down. After all, it's a gold mine, right? It must be loaded with money!
Or what if the miner has one primary site, and that mine catastrophically floods? Suddenly, it's not a mine anymore... it's an underground hydroelectric project!
These things can and do happen. That's why you don't put all your eggs in one basket. Let the miners take that sort of risk. You want to spread yours around, taking a nibble of this and a nibble of that.
And don't worry. If and when one of your portfolio picks hits it big, you'll still have bragging rights
Three Junior Miners
As you can see, there are many things you need to look at before investing in a junior mining company. A number of variables could derail it in the blink of an eye.
So, again, before you invest there, do your own research and be sure the business is on the right track.
With that said, we do have three prospects that look ready to offer you some big returns...
So here you have three small companies, each with its own level of risk. Of the three, the project generator is the least risky, while the producing gold miner is the most risky. That just shows how the world of gold mining can sometimes turn life on its head.
But all three offer opportunities. You just have to be comfortable with the level of risk involved.
Another Way to Capture Big Gains
There's also another way investors can make a quick, triple-digit gain... through acquisitions.
You see, as gold prices fell from 2011 to 2015, major gold miners struggled. They just couldn't seem to turn a profit and, as a result, they were going under.
They had to find ways to cut costs in order to stay afloat.
Mines, once thought of as these companies' future, began to shut down. So big miners began to use their reserves. But since those dry up fast... they needed to find new sources still.
This is where the junior miners come in. You see, one way to cut overall costs is to acquire low-cost, high-quality assets... such as junior mining companies with excellent projects.
This can make for a win-win-win situation. The bigger miners get what they need, the junior miners see their stock prices move much higher and investors get large gains in their portfolios.
We've already seen some acquisition deals produce some really big returns. For example:
As you can see, you're really getting two chances to hit it big with these junior miners. You can see a run-up on their own production numbers and then another one if the bigger miners acquire them.
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