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4 Principles To Finding Good Junior Mining Stocks

4 Principles To Finding Good Junior Mining Stocks
Written by
Dawson Ignatieff
Dawson Ignatieff
Published on
July 16, 2023
Read time
3
 min read

Junior mining stocks can be risky, and there are a lot of scams out there; however, they can be very lucrative if you know what to look for. In the next few paragraphs, I will show you how to find a diamond in the rough.

Share Structure: It's important to look at the share structure of a mining company, including the number of shares out (how diluted is it?), the ownership structure & at what price (no .01 paper waiting to get blown out), and any significant shareholders (look for major mining companies & mining guru’s). You want a tight structure with as minimal shares out as possible – a majority held by insiders and big players. This protects the share price from major selling & minimizes the free float. Allowing for bigger movements in price. 100s of millions of shares out on a junior is the biggest red flag unless they were strategically allocated to a major or strategic shareholder. Otherwise, there is a novel of poor reasons to have that much paper out. Look for that sexy virgin junior with 30-40m shares out and 50% tied up with insiders and majors – that doesn’t mean it’s a good deal, just a valid starting point for success.

Management's Past Successes: The track record of a company's management team is key. Are they pumpers, or promoters, have they rugged a company before? Do they even care about mining, what happened to their last company, did it go to zero or get bought out for $4 a share? You must ask yourself these questions. There are tons of crooks who pretend to care about mining just to sit on the board of a company and take a big salary of shareholder money and proceed to blow their shares out on the vulnerable shareholders. Key takeaway – look for past wins and avoid past disasters. If they have done it before they can do it again.

Management Salaries: The salaries of a company's management team can also give you some insight into how much they care/believe in the company. Are they there just to collect a salary to pay for their vacation home in Cabo? or are they making personal sacrifices and using the shareholder dollars to further advance the company because they have full conviction that their venture will pay off? No start-up junior should ever be paying a board member over 100k unless it is earned. Use that money to make a discovery first. Big salaries are one of the biggest red flags in a junior company.

 

Assets: It's crucial to consider the quality and value of a company's assets. There are hundreds of gold companies that have the best property in North America, however, only 1% make it. Funny. Look where the property is – is there a big discovery beside it? Maybe there is. Good. But is that all they have? Are they just promoting an area play? Red flag. Nearby discoveries are awesome but not when it’s the only gas they have, they need RESULTS. A few other things to consider are. First, jurisdiction, can they even mine there? Are the local communities pro-mining? Is it in a national park? Can they only get there by dog sled once a month & their nearest town is a plane ride away? Second, the economics, they can have the highest-grade deposit in the world but if the process of accessing the minerals and separating them cost more than the material is worth, the grade is useless. So – investigate the style of the deposit, the metallurgy, and the infrastructure to access it;

These are just a few of the many factors that should be considered when evaluating a small-cap mining stock. With all 4 of these principles cross-referenced, you are on a good start to finding highly prospective companies.

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