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Friday, May 31, 2019

Profits and Risks in the Junior Mining Sector

Profits and Risks in the Junior Mining Sector: The mining sector can be divided into two broad categories: major mining companies that are global in scale and well-financed, and junior mining companies, namely, smaller firms that are spending money on exploration in the hopes of finding a project that can be elevated to the mining or production phase.

Profits and Risks in the Junior Mining Sector


Junior mining stocks are usually cheap, with strong profit potential. But they can also be risky. Pat McKeough of Stock Picker’s Digest says he looks for well-financed junior miners with no immediate need to sell shares at low prices. Financing is essential in the early phases of a potential mining project because it requires deep pockets to fully explore a property. McKeough says junior miners should ideally have a major partner that can finance a mine to production.
In addition, McKeough looks for companies that have a second mine already in production. The proceeds from that mine can help finance exploratory costs in newer projects. Bottom line, McKeough looks for reasonably priced stocks with favourable geology.
On the risk side of the equation, McKeough points out that the odds of a junior mining company finding a prospective geological formation are slim. “One rule of thumb is that you have to look at 1,000 anomalies to find one prospect,” he says.  “And fewer than one prospect in a thousand turns into a mine. In other words, finding a mine is a million-to-one shot.”
But there are plenty of investors willing to take that chance. After all, a major precious metals find by a junior mining company can really pay off. Just ask Richard Warke, a Canadian mining executive with extensive success in the industry.
Warke has established and led multiple resource companies, including Augusta Resource Corporation, which was sold in 2014 for approximately $670 million.
“Exploration and development is a risky business,” Warke said in a recent interview. “There are many variables that have to be properly assessed in order for a project to succeed. A positive outcome requires strong leadership, favourable geology and metallurgy, funding and technical expertise to find and evaluate prospects, skilled labour, social licence and the ability to get the required permits, amongst other factors.”
Warke is now the executive chair of Titan Mining Corporation, which produces zinc concentrate at its 100% owned Empire State Mine in New York State.
Although investing in junior mining stocks can be exciting, it also takes patience, as many prospective mines take years before they start to turn a profit. So keep things simple: invest in strong, well-established junior mining stocks and remember that in this sector, discovery drives value.
Junior miners might not make you rich overnight, but they just might pay off in the long