While size matters in the worldwide mining industry and its related sectors, many of its operations are also due to the success of the small fry, so to speak. This is true in case of the increasing significance of junior exploration companies, which are potential sources of profitable investments for investors in the metal industry.
Discoverers of New Deposits
Junior mining companies are defined as exploration companies with the main goal of discovering new deposits of precious metals and minerals, such as gold, silver and platinum, even the likes of uranium. These entities target land property that have significant potential for large metals and/or minerals deposits, which can then be extracted, processed and consumed by others. Many of these companies are also involved in the extraction and processing of the deposits found.
Due to their focus on the discovery of new deposits, junior exploration companies are arguably the most important future mine suppliers. Their main roles include finding promising property, proving the viability of the resources, and staking the raw materials as well as bringing the mines into production capacity. These are staffed by expert geophysicists, geologists, and engineers, among other professionals, who work together to find new deposits that the multinational companies may have missed for whatever reason.
Junior exploration companies are also considered crucial players during the early stages of mining activities. These entities serve as the bridge between the lengthy lag time, which can stretch for years, between finding new deposits and bringing them into economical production. Without them, the metal and mineral supplies as we know them today will be different.
These companies use two main ways of exploration. First, green field exploration refers to the discovery of metals and minerals where none were known to exist – virgin territory, if you will. Second, brown field exploration pertains to the more intensive and extensive survey of areas with known deposit. Of course, green field exploration has high risks including high costs but there are also high rewards that come when substantial deposits are discovered.
You should ask the junior exploration companies on your shortlist about the type of exploration they are mainly involved in. Your decision whether to invest in one of them or not will partly be affected by it. You may, for example, be the type of individual who chooses conservative investments, thus, your choice in a company engaged mostly in brown field explorations.
In many cases, nonetheless, junior exploration companies engage in both green and brown field explorations. You should then look at the other factors that can affect their sustainability, profitability and profitability in the short-term and long-term periods.
Discover the Right Junior Exploration Companies
As with all types of investments, you should always do your research about the junior exploration companies – their history, track record, and financial statements, as well as their potential for growth given the present and predicted market conditions, among others. Your goal is to minimize the risks associated with investments in the mining industry, especially as it can be a volatile one.
Here are the most important things to consider.
Portfolio of projects and property
Check that the companies have a sufficient number of exploration projects in the pipeline. When we say sufficient, we mean neither too many nor too little – too many and the staff will be spread too thinly, too little and you will doubt whether it has adequate resources for viable explorations. The number will depend on the size of the company itself so be sure to consider it, too.
Just as in real estate investment, the adage about “location, location, location” applies to the portfolio of projects and property. Again, the type of exploration being done will affect the potential for investment returns. Brown field explorations are less risky because there are already known deposits – the chances of finding more are higher, too – and less costly because there are already existing infrastructure.
The weather in the location will also have an impact on the explorations. For example, drilling operations in Mexico can be done on a year-round basis but only for short months in Canada’s northern regions where the harsh winter affects operations. But since many deposits can only be found in specific areas, such risks are acceptable.
Members of management
The success of every junior exploration company partly lies on the success of its management team in steering it toward the effective and efficient achievement of goals. Be sure to look at the management profile of the companies that have been recommended for this reason. You should consider the expertise of the staff from the geological engineers to the chief executive officer, as well as their track record in mining for the specific deposits, in working together, and in finding capital.
You have to consider the government and industry regulations, the commodity prices, and the supply and demand conditions, to name a few more. This may seem such a laborious chore but when you consider that there are mining scams out there, such vigilance and diligence are a must.
Junior mining companies are good potential investments. But caution is still warranted because of their higher risks, such as the possibility of no deposits found. Lessen your risks of being brought down by their mistakes by making the right choice.