How to Select the Best Junior Mining and Exploration Companies

To provide you with an overview of what we think are the best mining stocks, we have been screening several hundred stocks over the years. We will not tell you which اقامة مستثمر في دبي to buy, but we will try to give you an information base, which you can use to quickly screen a rather confusing market. Our goal it to try and help you, the investor, figure out which companies have high investment potential and which are more likely to fail?

Our focus is on mining and exploration companies, which report considerable resources. There are e.g. companies, which report resources of 300,000,000 ounces of silver – and the market capitalization is 10,000,000 Dollars. That means 1 ounce is currently valued at 0.03 Dollars. We expect, better hope that gold and silver in the ground will one day have a valuation close to the physical bullion that has already been mined. Is this that simple? Answer: No! Don’t be fooled by numbers. We, the investors are not really in the position to ascertain the accuracy of any published resource figures. We do not say that published geological figures are per se wrong. We just want to remind you to be skeptical and question the figures.

How many financial and other analysts are mentioning a specific mining stock. There are lots of “experts” out there who want to make you believe that glossy brochures and reports are trustworthy and reliable. There is one big warning here: Do not trust any marketing spin! And be very careful with analyst recommendations. Do not just jump on a stock just because one or several analysts have recommended the company as a good investment. Some of the companies that were highly recommended just a while ago do not exist any more or the stock price has gone done so much that any investor would have lost more than 99% of his/her investment. The more analyst comments your read the more familiar you will get after a will individual market commentators and analysts. In our report we collect these analyst statements in order to get an idea of what the general sentiment about a certain company is. This is just one of many indicators. But usually a good one.

One simple test is whether the company has any cash. If it doesn’t, the company is forced to raise cash in the market to survive. Many companies with no cash and mediocre projects effectively have no value. Is the company making a profit or a loss? If it has been producing losses, for how many years? There are a couple of characteristics that may give us a clue. Good dividend payers with secure cash flow will probably rise first.

A number of companies have a few hundred thousand dollars in the bank and are conserving cash-paying rent and salaries and not doing much else. But if that’s all they’re doing, they’re going to burn through that money. If a company is going to add shareholder value, it needs to do something on the ground, physical work that will build value. It’s hard to imagine a meaningful exploration program unless it has more than $1 million in the bank. Most figures issued by exploration companies are very difficult to verify. You have to look at the actual figures, i.e. the figures that are reported in balance sheets. So only historical figures, production figures, are real data.

And exploration companies do not really produce anything else than “exploration results”, which are not worth much apart from having a positive or negative effect on the share price. We actually do not expect that all exploration and junior mining companies will survive. Many exploration companies are not able to evolve into proper mining companies and do not plan to do so. Many exploration companies probably hope to be taken over by another major and profitable player in the market. Mining is a highly capital intensive business. But if you think gold is going higher, buy gold. If you are going to buy gold stocks, buy them because there is some internal reason to own that company and why it is becoming more valuable. Never confuse the two.

It’s important to note that most of the juniors are nonviable at any gold price. Many of these junior companies issue many millions of shares at a nickel to raise $300-400K, which is basically going to pay insiders’ salaries. These people are basically putting the money from one pocket into another pocket, and issuing themselves 10 or 11 million shares in the process. This is very important to remember. Any exploration company or junior miner will need very heavy, external investment for a long time, before they are able to pull the metals out of the ground. Exploration work is extremely expensive. Do you have any idea how much a single bore hole costs?

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