Junior mining stocks are early-stage exploration companies that explore for economically viable mineral deposits. These companies generally have small market capitalizations and are considered early-stage, high risk investments.
Exploration efforts are generally focused on precious metals, such as gold and silver, and base metals, such as copper and uranium. Additionally, these companies may explore for lithium, platinum, rare earth elements, zinc, and other important minerals.
Junior mining companies play an important role in the global mining industry as they generally focus their efforts on the high risk, high reward search for new and economically viable deposits of minerals.
If successful in discovering a new mineral deposit, the market capitalization of a junior mining company may increase significantly in a short period of time. They may also be acquired by a mid-tier or senior mining company at a significant share price premium.
What is the difference between a junior mining company and senior mining company?
Whereas junior mining companies generally conduct early-stage exploration with the goal of discovering new mineral deposits of merit, mid-tier and senior mining companies are more focused on building and operating mines to extract mineral deposits.
Examples of senior mining companies include Freeport-McMoRan (copper), Agnico Eagle Mines (gold), Cameco (uranium), and Pan American Silver (silver).
What are common characteristics of junior mining companies?
Focused on Exploration: Junior mining companies primarily focus on exploration activities, which includes conducting geological surveys, rock and soil sampling, and exploration drilling with the goal of identifying and delineating mineral deposits.
High Risk, High Reward: Investing in junior mining stocks is considered speculative and carries higher risk compared to investing in larger, more established mining companies. The stock prices of junior mining companies can be highly volatile and share prices can fluctuate widely based on a variety reasons, including exploration results, commodity prices, and overall market sentiment.
Capital Intensive: Junior mining companies require significant capital to finance exploration activities. Because these companies do not generate any revenue, they generally rely on raising capital through the issuance of new shares via private placements.
Exploration Success: Successful exploration results and the discovery of new mineral deposits can lead to a significant increase in the value of a junior mining company’s underlying share price. This is one of the reasons that investors are attracted to investing in junior mining stocks.
Recent examples of exploration success included Great Bear Resources, a junior mining company whose share price rocketed from $0.50 to $29 inside of four years after making a new and significant gold discovery in Ontario.
The company was eventually acquired by senior mining company Kinross Gold, who plans to build and operate a new mine that will extract the gold deposit originally discovered by Great Bear.
Investors who purchased shares of Great Bear at $0.50 and held until the Kinross acquisition were rewarded with a gain of 5,700%. That equates to a $20,000 investment appreciating in value to more than $1.14 million inside of four years.
Speculative Nature: Due to the inherent risks and uncertainties associated with exploration, investing in junior mining stocks requires significant due diligence and risk assessment. The Great Bear Resources success story is the exception, not the norm. Most junior mining companies fail to discover new mineral deposits of merit and their share prices will remain flat or decrease over time due to the capital intensity required to finance exploration activities.
Investors need to consider numerous factors when considering investment opportunities in junior mining stocks. Some key factors include management’s track record of success, the jurisdiction in which a mineral deposit resides, a company’s ability to raise new capital, and more.
Numerous resources are available online to help support investor due diligence of junior mining stocks. The top junior mining site is Junior Mining Network, which provides free access to junior mining company lists, an advanced drill hole calculator, junior mining stocks screener, a free morning newsletter, and many more tools.
