Are Gold Exploration Companies Worth A Look For A High-risk/reward Portfolio?

gold exploration companies
Published on: July 8, 2022
Author: Philip Tai

As stagflation hits, a lot of news has been coming out about how gold is a natural hedge, but looking at the past few weeks, gold’s price growth has not materialized. However, global demand for gold as a commodity is increasing. Demand for gold in jewelry and electronics, in particular, is growing. 

Can we capitalize on gold’s growing demand without buying physical gold? 

Gold exploration stocks currently offer large upside potential.  Investor interest in the past years has overlooked this industry, preferring to focus on meme stocks and crypto, and before that, cannabis.  With near rock bottom prices, these stocks have room to grow when investors cycle back into the industry. 

What to Look For in Gold Exploration Companies for Growth in Value?

The unproductive nature of physical gold is why some investors prefer to invest in gold stocks. The value of mining stocks tends to track the prices of the commodities on which they focus but also grow, sometimes significantly, with major company developments such as improvements in mine productivity and proof of finding additional metals resources in the ground owned by the company.

I use the following criteria to find gold exploration stocks:

1, Find companies with management that have a track record and experience, including success in discovering resources and growing resources.  Local regional expertise and experience with major mining companies are also helpful.  Make sure the company has a strong chief geologist as well as a CEO.

2, Strong capital structure and a small retail float. The capital structure refers to the cash, shares outstanding warrants, and options. Companies with cash, tight share structures, and tight floats.

The float is the number of shares available for trading after subtracting closely-held shares. The smaller the retail float, the more stock is tightly held (by insiders, institutions, and large investors). Stocks with tighter retail floats can rise more quickly than stocks with larger retail floats. It is basic supply and demand, and the retail float’s size is just as important as the overall structure itself.

3, Relationships with the industry at large.  Juniors can have industry relationships through joint ventures or investments, such as a major gold mining company investing in the junior or partnering with the junior on its project? That would certainly lend quite a bit of credibility to the junior and its project.

4, Project with size and resources that can attract potential acquisition from the majors. Size and grade are a good starting point for high margin potential, but proximity to larger projecting companies is also beneficial. Speaking of size, look for projects that have district-scale potential. In other words, look for extensive land packages that could host more than one deposit.

Case study of a Junior Gold Exploration Stock – Newrange Gold 

Newrange Gold Corp. (TSXV: NRG, US: NRGOF, Frankfurt: X6C) is focused on district-scale exploration for precious metals in the prolific Red Lake District of northwestern Ontario.  The past-producing high-grade Argosy Gold Mine is open to depth, while the adjacent North Birch Project offers additional blue-sky potential.

See Newrange’s most recent press release here.

Disclaimer: NAI is being compensated for this content. Materials contained in this content are for information purposes only and is not intended to constitute an offering of securities in any jurisdiction. Nothing on this content should be construed as an offer, solicitation or recommendation to buy or sell products or securities.

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