The unnoticed over-performers
In the fast-paced world of investing, there's a unique sector that often goes unnoticed: junior mining companies. These under-the-radar ventures are the dark horses of the mining industry, often overlooked for their bigger counterparts. However, for the informed investor looking for untapped opportunities and high potential, junior mining companies can be...well, a goldmine.
PUBLISHED JANUARY 2024
It's ok to not be mainstream, no? Image By Sketchepedia
Understanding the Basics of Junior Mining
So then, what is Junior Mining all about? What do we mean by it? New companies (Mostly)? Small companies (Yes)? So, just new and small companies (No).
To end this: Junior Miners are not ‘start-ups’ in the mining industry. Although they are in a way, we call companies ‘Junior Miners’ when they follow a specific purpose:
That of searching for new deposits. This is why they are also referred to as ‘exploration companies’ or ‘explorers’. All these terms are synonymous.
In other words, Junior Miners occupy a very specific niche within the global mining industry, by taking care of exploration and discovery of new mining projects. In other words: Without Juniors, we wouldn’t get any new supplies once existing mines will be exploited. The consequence: Our economies would collapse, and we with them. Yes, we can be so outspoken: Junior Mining is essential for the global economies, and essential to sustain our lives.
Our modern economy is full of mining products: Minerals, metals - everywhere. Image By benzoix
The industry relies on these specialized firms as larger mining corporations usually lack the flexibility or willingness to mobilize resources towards high-risk, potentially high-return exploration work. Juniors, with their lean operations and risk-absorbing nature, fill this gap - acting as the tip of the spearhead, seeking out and confirming the existence of economically viable mineral deposits. Everywhere!
While the risk associated with investing in Junior Miners can be higher due to the speculative nature of the work, the potential rewards can be substantial. From creating shareholder value through discovery success to acquisition possibilities by larger corporations, investors willing to take some risks for the chance of extraordinary returns are faced with a compelling matrix of investment opportunities within the Junior Mining sector for both small and large investors.
What is the Potential for Wealth in Junior Mining?
If you're asking about the wealth potential in Junior Mining, it's equivalent to asking about the likelihood of striking gold...literally! At least this is what most people think. And this is not wrong, but…there is more to it. Because, striking gold (or any other metal for that matter) is rare. Often however, being able to show evidence that there is a realistic chance that there could be gold in the are that is under research might be sufficient. True, for a while only, but as you will learn when sticking with Explorado Invest, investors who understand can profit from specific windows of opportunity – independent of what will be the final fate of the exploration project.
Gold is here to stay. With gold prices reaching record heights, it is a good opportunity to learn about it, and about the many ways it can support your investment goals.
Of course, it would be wrong to state that such investments are not without risk. There is a number of different risks along the way: From geological to technical to political. And don’t forget about commodity prices. However, risks can be managed too, and this is the whole essence of successful Junior Mining investment.
Crazy for some - well managed risk for those who know. Source: Author
In my humble opinion then, the allure of Junior Mining investment remains undeniable - if you look for returns that tower anything else. The possibility of a significant payoff from a resource discovery - perhaps even astonishingly so - often becomes irresistible. Let's just say, when Junior Mining strikes gold, for investors, there's no thrill quite like it. It's a potential game-changer, and that's what makes it a unique investment niche in the world of mining.
What is the business model of Junior Mining?
When you enter the realm of junior mining, you're positioning yourself on the launching pad of wealth generation. What sets this sector apart? First and foremost, junior mining companies, unlike their senior counterparts, are in the business of exploration. This then leads to a thought: How do they earn money? Well, they don’t really. These firms pour knowledge (and sometimes sweat) and capital into finding the next big mineral deposit. They're the treasure hunters of the mining world, and their potential finds can yield hefty rewards. This is then when more money come out at the end than is being used for in the process. It is wealth generation by providing opportunities for the future. There are different modes of assessing their business model, but buying cheap and selling dear is not part of it.
Investing in junior mining, therefore, is a strategic gamble,
or, as I like to call it: Informed speculation.
The quest is fueled by thorough research, geological testing, and a keen understanding of the market dynamics. If one of your chosen firms can assure the investment community that it is on the way to discovering a significant mineral deposit, the reward is a seismic shift in your portfolio's value.
High-risk, High-reward: That's the tenet of junior mining investment. Unarguably, this sector can be volatile, but the potential returns can far outweigh the risks for informed investors.
Commodities Boom: In times of economic growth and industrial expansion, the demand for metals and minerals skyrockets. This puts the junior miners, those on the frontline of exploration, in a potent position of leveraging the boom effects.
How does Junior Mining differ from other forms of investment?
When you dive into the investment world, it's crucial to consider how different opportunities align with your financial goals. So, how does investing in Junior Mining differ from investing in, say, a conventional mining company? Let's take a closer look.
Firstly, investing in Junior Mining companies is often viewed as a more speculative venture. As we discussed further above, your investment target primary value comes from its potential for significant discoveries. This potential for high rewards is one of the attractive aspects of Junior Mining investments, but it also means there's substantial uncertainty and risk. That means, unlike shares of operating mining companies, there aren’t dividends, and it could also be the case that you will be seeing a downward trend in shareprices for quite some time. All that depends on the output of the work of the Junior Miner. The point I want to make is this one: If you need a specific return at a specific point in time – then don’t use that money for Junior Mining investment. You could get much more – but maybe at a later date.
Big players in the mining industry usually have stable revenues from operating mines and for those preferring stability and predictable dividends, traditional mining companies may be more suitable.
Can Junior Mining be a part of a diversified investment portfolio?
Yes. It can. And I argue that it should be. In fact, Junior Mining should be considered a vital part of a balanced and diversified investment portfolio. Because of its unique potential for sizeable returns Junior Mining presents an exciting and rewarding investment opportunity.
What other options for investment are there in mining? Take a look at the blog article by clicking on the beautiful button below:
And honestly: Why would anybody forego the chance of a 500% return? I take a lot of enjoyment too in the process, when you see how the company is advancing. And believe me, once you have invested in a company that is really going to strike it big, it will make you immensely proud, because you know you had the right instinct and the right knowledge. And you will never stop investing in Junior Mining as a result. Take my word.
It’s all about the thrill of the hunt, and the chance of a big payoff if the next big mineral deposit is discovered.
Diversification Strategy
Referred often as the “venture capital” arm of the mining industry, junior miners can add a level of excitement and potential boom to your portfolio that is hard to replicate with other types of investments. For investors who have a higher risk tolerance and are looking for some high-potential “informed speculation assets” in their portfolio, junior mining companies offer just that.
A Potent Hedge
Unlike other sectors such as technology or manufacturing that may fluctuate with the overall performance of the economy, the mining sector can act as a hedge against economic downturns. When economies falter, the value of precious metals often rises. This is because investors typically flock to what are considered ‘safe-haven’ assets when other markets are performing poorly. Imagine what the share price of a company is doing that is striking gold in a time when everyone is seeking it during an economic downturn?
What are some successful case studies of Junior Mining investments?
There are many. And there are many different reasons of why companies have been successful. And what I like about this space: there are also a lot of different time horizons. Investors can cash in within weeks. Or over the years.
I want to show you an example of a company that developed to a true star over the years, and was, in 2022, finally acquired by an industry major, Kinross. I am talking about Great Bear Resources, a Canada-based firm that explored for gold. In 2019, Great Bear Resources saw a significant rise in their share value, thrusting them to the status of one of the top-performing junior mining companies that year. The company's advancement of its flagship Dixie Project to one of the significant gold discoveries in Canada has won considerable investor attention, achieving a 600% return in just one year. But if you look at the chart below, you could see that is gained around 1000% within a three year time frame. We don’t have the space now and here, but equipped with the right knowledge, investors in 2019 didn’t go in just with luck, as the data at that time showed clear signs of success. Hence, Junior Mining can be a great investment for the longer term.
Share price development Great Bear Resources
I want to provide a contrasting example to our first one. That one is from 2023, to also make the point that one doesn’t need to go back in years in order to discover ‘the successful explorer’. Every year brings its winners.
In any case, our second example comes by the name of Wildcat Resources (names are another factor of why I love this sector). What I want to show you with this one is also that in some cases, risk can be trivial in comparison to outcomes:
Let’s assume you bought shares of this wild cat for USD 2,000 beginning of 2023. You could have acquired a share at the price of 3 cents, by the way. You might have done so because it was exploring for gold. So far, no spectacular news came out of the project, neither good or bad. But then something happened, that in that manner can only come along in this sector:
Because in May, the company announced to acquire another project, namely some tungsten deposits that have also been suspected to contain lithium. Lithium was super-hot last year, and junior mining markets can leverage such market sentiments big time: JUST THIS ANNOUNCEMENT LED TO A SHARE-PRICE INCREASE BY 67% in May (that announcement then has poured 1,340 USD into your wallet).
Want to find out the secrets of being successful with Junior Mining investments? Go on to my blog on 'How to make money with Junior Mining'
Share price development Wildcat Resources
But lets continue, because the story does not stop at 67%.
You need to know though that Wildcat’s new project is near some very big hard-rock lithium mines. That was no coincidence. Investors trained by Explorado would have read the signs of the wall. First field work has confirmed that pegmatites in the project carried lithium: Now the share price was at 18 cents (500%). We are in July, two months after your purchase.
There is no discovery without drilling – hence, the cat drilled. And it hit. Shares were now at 40 cents. The project was good, the company knew what it had to do, and they continued their work, pouring out promising news on the go.
Wildcat's drilling operation at their Tabba Tabba project in Northwestern Australia (c) mining.com.au
In November of the same year, you had to pay 92 cents for a single share. We started with 3. That is almost 3,000%, or almost 30 times the original value. The 2,000 dollars would have changed into almost 62,000 USD.
This is why I called such options life-changing!
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What factors should I consider before investing in Junior Mining?
Ok, lets get a cool head again and look at facts:
When considering your first foray into the world of junior mining investments, there are several key factors that you might want to consider to maximize your returns and minimize potential risks. After all, investing is far from a simple game of chance, as I explained. It is a strategic move that requires careful thought and analysis.
Project Location: The first factor to look at is the location of the project. Properties located in mining-friendly regions, with established infrastructure, are considered safer bets. Stable economies and countries with good mining regulations are signs of a lower-risk environment. So if you have to pick between Finland and the Central African Republic, go for the Fins.
Commodity Types: Next, scrutinize the type of commodities the junior mining company is exploring. Popular commodities like gold, silver, copper, zinc, and others have different market dynamics. Keep an eye on the market trends and global demand for these commodities. Remember the ‘lithium’ effect with regard to the Wildcat story?
The Management Team: A company's management team plays a vital role in its success. Consider their track record, experience, industry knowledge, and commitment to the project. A strong management team increases the likelihood of the project's success.
Financial Health: Check the financial status of the company. Look at their balance sheet, cash flow, and income statement. If their financial health is strong, it generally means they have the resources to undertake exploration and development activities.
Project Stage: Understand where the company is in its project development stage. The earlier the stage, the greater the risk, but potentially also the greater the ROI if mineral deposits are discovered and successfully mined.