Everything You Need to Know About Junior Miners


"What exactly qualifies a company as a junior gold miner?"

Every once in a while, you'll read that junior gold miners are where it's at. The theory is simple: So-called "junior minors" - mostly younger companies still in the exploration and discovery phase of developing gold mines - will either strike it rich on their own or become an attractive acquisition target for the majors.

What exactly qualifies a company as a junior gold miner? Some analysts say that any company that's not part of the Philadelphia Gold and Silver Sector Index (XAU) or the Amex Gold BUGS Index (HUI) should be considered a junior. A more descriptive definition takes into account the resources a company holds, how far it is from actual metal production, or how much it has produced in the last few years.

That is to say, it's all a matter of opinion.

Where can you find these junior miners? Take a look at the Toronto Stock Exchange (TSX). As of the end of 2008, the TSX and TSX Venture Exchange had 1,427 mining issuers listed between them - 356 on TSX and 1,071 on TSXV. The 1,071 companies listed on TSXV are broken into categories such as mining, mining (non-oil and gas), mineral exploration/development, gold mining, etc. For our purposes, "junior gold miners" can (and do) fall into any and all of these descriptions - so this list is merely a starting place.

The TSXV tends to have early-stage, small-cap companies; we're talking small small. Of the mining companies on TSXV, 45% had market caps between $1 million and $5 million as of December 31, 2008. Only 1% had market caps of $100 million or more.

As an investor in a junior gold miner, you are mainly acting as a venture capitalist - supplying money to keep the company searching, test drilling, or perhaps even funding the beginnings of mining operations.

The first rule is caveat emptor. As an investor, your job is to go beyond the website to find out what is really going on at the company.

The prevailing wisdom is that the location of properties (e.g., political stability of the region) and reserve levels are key indicators to look at if you are investing in a company for the long haul. But this is not fire-and-forget investing; this is making-phone-calls investing. You have to stay involved if you want your investment to pan out.

In a market where inflection is everything, junior gold miners should be considered "Junior Miners" first and foremost. The "Gold" part is the dream.

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