Check These 7 Things Before Investing In Junior Mining Stocks

Published on: Mar 8, 2024
Author: Caroline Kong

Junior mining stocks tend to offer a high return on investment, but at the same time, the investment risk is greater as well. Before deciding to invest in the shares of a junior mining company, investors should carefully study the fundamentals and past experiences, including the policy and mining environment of a project, whether it is located in close proximity to other mineral projects that are already in production, and the company’s financial situations.

On the TSX Venture Exchange, it is not rare to see junior mining stocks double in price within a week, usually due to favourable exploration or drilling results, or due to the addition of strategic investors.

As such, junior mining stocks remain attractive to investors, and the following are some of the criteria that investors can look at to determine whether or not they meet in order to minimize their investment risk before considering buying a junior mining stock.

  1. It is often necessary to stay away from mining stocks that operate in insecure and politically unstable areas such as the Congo and Venezuela, or in countries that may be subject to sanctions such as Russia. Mining is inherently a politically sensitive industry, and there is no way to move a mine to another country, and for the local population it is sometimes perceived that foreign mining companies are plundering the resources that have been left to them by their ancestors. What is often true is that it is only through the capital and expertise of foreign companies that locals are able to extract and create value from the resources buried deep underground.
  2. It is betterfor junior mining companies to explore projects in close proximity to nearby mining projects that have the same geological conditions and are already in production and in operation.
  3. The exploration project is well-funded and there is no immediate need to sell the shares at a low price at short notice, as this would dilute the interest of existing investors. Preferably with a major partner who agrees to pay for drilling or other exploration or development costs.
  4. The best junior mining stocks should have strong balance sheets and low debt levels with positive cash flows, even when commodity prices are low. This is best if the cash flow is sufficient to cover, or at least help cover, the development costs of another mine.
  5. Avoid mining stocks that are trading too high due to broker solicitationsor investor fervour for the underlying commodity (e.g. gold). Instead, investors should focus on mining stocks that are reasonably priced and have favourable geological conditions.
  6. Maintaining a high average daily volume is a positive factor to look for when picking junior mining stocks. The more actively traded a junior mining stock is, the more liquid it will be andeasier it will be to cash in on profits.
  7. The best gold mining stocks should have a market capitalization of no more than half the value of the gold or other mineral resources underground. Assuming that the company will also be able to expand its ore reserves in subsequent phases, the value of the ore reserves is twice the value of the mining stock market, which provides a margin of safety.

If you’re interested in investing in junior mining stocks, you might want to keep an eye on this company: Silver Storm Mining Ltd. (TSXV:SVRS). Silver Storm Mining Ltd. holds advanced-stage silver projects located in Durango, Mexico. Golden Tag recently completed the acquisition of 100% of the La Parrilla Silver Mine Complex, a prolific operation which is comprised of a 2,000 tpd mill as well as five underground mines and an open pit that collectively produced 34.3 million silver-equivalent ounces between 2005 and 2019. The Company also holds a 100% interest in the San Diego Project, which is among the largest undeveloped silver assets in Mexico.

Disclaimer: Investing involves risk, and individuals should conduct thorough research and seek professional advice before making financial decisions. 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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