How to Invest in a Junior Mining Company

Investing in the “juniors”, the small companies formed to explore for mineral deposits, is much more speculative than investing in larger companies. Junior exploration companies, as well as other venture capital companies like small high-technology firms and junior oil explorers, offer high returns if they are successful. The other side of the same coin is the higher risk that they will fail.

One very sensible rule is never to invest money you cannot afford to lose. Understand that the junior exploration game is a gamble, and keep the rent money out of it. The buy-low/sell-high bromide means more here than anywhere else in the market for once the stocks price is up and everybody is talking about a great mining play at Dead Cat Falls, the money has been made.

Jumping from one stock to another only makes money for your broker. Picking a good investment and staying with it is a better strategy. One way of picking that stock is to look at its people. If they have a record of making projects go ahead, it’s a good sign that they are diligent and talented.

Beware of promotions. In particular, never buy a stock from a dealer who calls you up cold — you haven’t had time to investigate the company’s management or assets. High-pressure investment sales people are still around. Dealing with them will cost you money.

Be extremely wary of information from Internet chat rooms and bulletin boards. Some of the people posting bullish statements are long on the stock, while some of the negative messages may originate from professional short-sellers. The exchange of views may be entertaining, but they should not be relied upon to make sound investment decisions.

Remember, too, that there is little or no regulatory oversight of newsletter writers, and many hold positions in the stocks they recommend. While some news letters provide quality information, others are purely promotional. Stick with experienced, respected newsletter writers and avoid the rest.

If you have an opportunity to invest in a prospecting syndicate, keep in mind that these investment rules are comparable to those for investing in junior exploration companies. Invest only what you can afford to lose. Remember that prospecting is a gamble. Consider the management carefully; is there an experienced prospector or mining man who can pilot the venture successfully?

Recall that the success of a prospecting venture depends on getting an exploration or mining company interested in the property. This is much easier to accomplish during good times; companies will never have money to burn, but they are more likely to have money and man power to commit to a good-quality prospect when they are making money themselves.