A junior mining company is an exploration company in search of new deposits of gold, silver, uranium or other precious metals. A junior gold miner is a junior company that exclusively mines gold. Most of these companies are in the development and exploration phase and are on the lookout for land with a higher chance for uncovering large mineral deposits.
As an investor, it is important to be able to tell the difference between a legitimate company ready to strike it rich and fly-by-night operations. If you are able to invest in a company before it hits the mother lode, you could be rewarded handsomely. Junior miners are often considered growth stocks. Many junior miners are penny stocks. These companies usually do not pay dividends, as they need to reinvest earnings to mine for gold.
There is much debate surrounding the criteria that classify a company as a junior gold miner. There is no universal definition of a junior gold mining company. Some financial analysts consider gold mining companies not listed on the Philadelphia Gold and Silver Sector Index (XAU) or the Amex Gold BUGS Index (HUI) as junior gold miners. Other criteria used to determine if a company is junior include its company’s resources, its proximity to gold production and the quantity of gold it has uncovered in recent years.
Unlike a full-fledged gold mining operation, a junior gold miner typically does not have its own mining operation. A junior miner is a venture capital firm; it mainly relies on venture capital to secure its financing to undertake mining operations. There is some gray area in the definition of junior miner. Some financial analysts consider mid-tier mining operations junior if they recently decided to go into the development and exploration phase. There are publications available that list up-and-coming junior miners for a subscription fee.
Another source of junior gold miners is the Toronto Stock Exchange (TSX). The Toronto Stock Exchange and TSX Venture Exchange have hundreds of mining companies listed. The TSXV is your best source for junior miners. This stock exchange has mining companies conveniently broken down into categories. Just like any other industry, market capitalization is a criterion commonly used to determine junior miner companies. On the TSXV, you can typically find small-cap companies. Small-cap miners are those in the early-stage of development with market caps of $1 million to $5 million.
Junior gold miner operations are typically high-risk. A company only has a limited amount of capital to strike it rich. If it fails to discover gold mines before its debt comes due, it may have no choice but to file for bankruptcy. Junior gold miners are typically very sensitive to the price of gold. If the price of gold suddenly drops, it may no longer be financially feasible to operate.