Junior Gold Miners
What a Junior Gold Mining Company isn’t
Let’s start by looking at what juniors aren’t by examining their more established and far larger and more valuable equivalents.
The biggest gold–producing companies in the world are companies like Barrick Gold, Newmont Goldcorp, AngloGold Ashanti, Kinross Gold and Newcrest Mining. These can be ranked in size in different ways. Perhaps they produce the most gold, perhaps they are the most profitable, perhaps they have the most gold reserves or perhaps they have the biggest market capitalisation attributed to them by the stock market.
Barrick Gold for example is worth USD35 billion.
What they all have in common however is that they are large, employ tens of thousands of people, have institutional investors and institutional clients, global distribution networks as well as sophisticated mining operations. Juniors, on the other hand, are tiny in comparison.
An agreed-on definition of juniors is difficult to find. But the first place to start is that juniors are small. Most agree the value or market capitalisation of juniors can be from USD1mio to USD1.5bio. They also produce between 0 and 300,000 Troy Oz per year. Their stock is relatively illiquid on the stock exchange. This makes them highly speculative and some of the riskiest mining company investments and are especially sensitive to gold prices and other external factors.
Many juniors focus mainly on finding new sources of gold. This can be in abandoned mines or overlooked deposits or entirely new areas. This can be done through traditional techniques but more commonly is led by new geological technology or computational models. If gold deposits cannot be proven, then it is likely the company will have to be declared bankrupt and investors lose their entire investment.
Other juniors have already conducted the exploration phase and actually produce gold, albeit in small quantities.
As companies or investments juniors should be regarded as high-risk. They are young, rarely profitable and depend on external funding or being taken over by larger companies to grow. Juniors can sometimes receive funding from venture capital companies especially if their founder and employees have experience and a solid reputation in the industry.
To sum up:
– Junior gold mining companies are small, speculative companies that seek to explore, discover, and potentially exploit areas that have a significant probability of accessible and commercially viable gold deposits
– They are usually relatively young and unproven
– Their shares are listed on exchanges around the world, but trade infrequently and are thus illiquid
– Juniors will usually have management teams with experience in the industry
– Juniors can have multiple projects running at once throughout the world
– Juniors usually have a market capitalisation of less than USD1.5bio
– Juniors can be at different stages of the gold production process. Many are exploration while some actually have real production
– The usual goal of early investors and management is to find a large buyer once exploration has been deemed successful or reliable production can be assured
– Many junior mining companies go bankrupt or never live up to their promise
Like any investment there are risks in allocating capital to junior miners. The chance of success is low, but when there is success the returns can be very impressive.
Companies with a strong, experienced management, and a solid track record will be more expensive than one with a newcomer CEO with no experience. The former generally will have a better chance of success.
But nothing is certain in the junior miner space and investors must expect to lose all their investment if the site is not as promising as hoped. Not only is the chance of success quite low in finding and then exploiting a deposit there are a multitude of external risk factors as well.
Political instability, confiscation, local wars or skirmishes can render the project impossible or worthless. Commodity price collapse can also make the project unviable. Furthermore, interest rates can move higher making the company’s debt unsustainable even if the project is viable.
Environmental concerns also play a large part in whether a mine can even be allowed to be opened by the local government. This can also be a problem if local government requires a high licensing arrangement to offer a permit.
Even if the exploration does look promising, the main area of extraction can disappoint.
Juniors face many obstacles to become successful. 99% of them don’t make it. Currently, there are 3000 juniors listed on stock markets globally (across all commodities), and there have been tens of thousands in the past that have failed. A lot has to go right with a lot of luck and favourable tailwinds. They need capital, time and patient investors. Such projects can take one or two decades to come to fruition.
Globally there are 50 major mining companies. The goal for juniors is to be acquired by one of those. In rare cases the discovery of a huge deposit may mean they can go alone but that is unlikely.
For investors, it is worth following the industry and keeping track of where new supply is being obtained, especially as peak gold production has already been reached. But as a single investment junior miners are very risky, most fail and investors lose everything.