Existing gold producers might be having a tough time on the stock market right now, but there’s always an exploration and development company that can explode in value with a big discovery of gold or an expansion in its resource base.
The key to making money from junior mining companies is the participation of institutional investors. Most junior mining companies have a considerable amount of common shares outstanding—they have to do this in order to raise money for exploration and feasibility studies. But as we all know, institutional investors are the big drivers of share prices; you want to own a story that other big investors own, because they are the ones that can turn junior mining companies into burgeoning gold producers. There’s nothing wrong with a little piggy-back trade. Besides, as an individual investor, are you really going to go visit a junior gold miner’s property in Peru?
There are many gold junior mining companies out there. Some don’t even have ongoing business operations. They are public companies that have the exploration rights to a property, and speculating in this kind of story is virtually impossible for an armchair investor. From my perspective, I think a speculator in junior mining companies wants the story to be a little more developed—with institutional investor participation already present.
One such story in this market is Belo Sun Mining Corp. (TSX/BSX), which is a Canadian company developing its 100%-owned Volta Grande gold property in Brazil. The company has a strong following among institutional investors and Wall Street analysts. It’s one of those junior mining companies that seem to be doing everything right. The company’s stock chart is below:
Chart courtesy of www.StockCharts.com
Still at the development stage, this gold miner is working methodically to develop an accurate resource estimate for its property. The company plans to issue a feasibility study this year, which will lay out the business plan for a gold mine to be built. It’s highly likely that the company will come back to the stock market in order to raise more funds to develop its property.
Speculating among junior mining companies is a 100% risk-capital endeavor. Anything can happen to this kind of stock. History has shown that there is great disappointment within the group. Stories come and go; there have even been some fantastic frauds. But when all the right pieces and the right people come together, you can actually make a lot of money from junior mining companies that hit it big.
I don’t see the spot price of gold accelerating over the very near term, but the fundamentals do exist for rising gold prices in the future. If you are interested in speculating in gold junior mining companies, take your time and be highly selective. The odds are you won’t get a winner.
No comments:
Post a Comment