Risk & Reward in Junior Mining
“Who wants to support a regime like Saudi Arabia by buying gasoline?” he said.
“So you’d rather support child labor in the Congo?” I replied, referring to the abhorrent conditions children work in to provide cobalt for electric cars.
That was just one exchange on the “Next Big Things" panel I moderated at this year’s New Orleans Investment Conference, where your editor was as busy as ever.
That panel was my fourth time behind the microphone in three days.
I also gave a 20-minute talk in the Grand Ballroom of the Hilton New Orleans Riverside…
Sat on the Mining Share panel….
And gave a 40-minute workshop with your co-editor Gerardo Del Real about “The Good, Bad, and Ugly in Junior Mining.” Spoiler alert: There is more of the latter than the former.
Indeed, I can verify the sector’s notoriety for doing more mining of investors' pockets than of minerals from the ground.
With gold in the nascent stages of a new bull market, and new blood starting to take a look at the sector… the vampires are out.
Stop the Bleeding
I talked to more than a few people who were first-timers at the conference, many of them 35 and under. And as I talked to them, it became clear they didn’t yet understand the entire game.
After a dozen years, I’m not entirely sure I do either. But I’ve seen enough of the players play to at least know a few red flags to look out for. But before we get to those, let me quickly recap the risks inherent in the sector.
First, unless a company is operating a mine, it is making no money. It is either developing a project it thinks can be a mine… or it is exploring a property for an economic ore body worthy of development.
Since they make no money, they need yours. A lot of it.
The odds of finding such an ore body from a raw piece of ground, called a greenfield, range from 0.03% to 0.1% — putting them forever not in your favor.
The chances of finding a deposit that becomes a mine on a piece of ground that was a mine in a former life, called a brownfield, rise to a whopping 1.0% to 5.0%.
And even if a company defies those odds and finds a mineral deposit worth developing into a mine, the road of risk is still long and winding.
There is still permitting risk, jurisdictional risk, commodity price risk, and the ever present risk of capital destruction. Which brings me back to them needing a lot of your money.
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Since there are no revenues being generated because the company isn’t selling anything, that money has to come from investors, er, speculators. Because putting money into a junior miner is much more a speculation than an investment.
More often than not, that money goes to what’s affectionately referred to as money heaven. That is, your capital dies — either because of misallocation by management or because of the risks in the sector I’ve already laid out.
Because of these risks and the high probability of loss of capital… speculating in junior mining isn’t for everyone.
But it can provide outsized returns for those who understand and are willing to take the risk.
It’s a full briefing on the sector, including what to watch out for as well as the catalysts I see that will drive gold higher — plus what I think the best way is to speculate right now.
Call it like you see it,
Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.
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