The physical gold price bottomed in January of 2015 and since then has put in higher lows, which technically is a sign of a new uptrend. Gold has yet to put in a new high since bottoming, but the move into the junior sector could be a signal the next move will indeed take out the previous high of $1349.
There are various ways to invest in a gold during the cycle such investing in the majors, mid-caps, etfs, leveraged etfs, junior producers, pre-production or exploration companies.
Of these the ones that have the biggest upside potential and to me the most exciting are the speculative exploration companies.
These are also the ones that attract the attention of the majors or mid-cap producers who are looking for a proven deposit that someone else has already found to avoid the high cost of discovering their own new deposit.
For the most part this is what a junior explorer wants as the time and cost of bringing a deposit into production takes years and requires many rounds of financing. Furthermore, it requires mine operational management expertise to achieve a profitable producing mine, that many explorers do not have.
When investing in junior gold exploration stocks I like to focus on reasonably priced mining companies with favourable geology. On top of attractive geology, I also like companies that do not operate in hostile environments or politically unstable countries.
Other factors to consider is the number of shares outstanding and the size of the float that trades, how capitalized is the company, who was involved with the latest financing and what percentage of the company management owns (Use sedi.ca to help here).
I also like to check to see how reputable the management team is and what other companies they are involved and what boards they sit on. Also what is the history of the company, how many time has it rolled back shares, changed its name/symbol and started as something new (Use sedar.com to help out here).
Diversification is important in all aspects in investing and no more is true then the junior mining sector. Investing in basket of potential project generating companies will increase your odds of walking away with some profit.
There are various types of deposits with some of them summarized below that can be used as a starting point for more detail analysis and understanding:
Porphyry Copper - large body of rock that contains disseminated chalcopyrite and other sulphide minerals. It is a type of hydrothermal mineral deposit and is mined in bulk on a large-scale, generally in open pits, for copper and by-product gold and molybdenum.
Volcanic Massive Sulphide Deposit (VMS) - bodies of sulphide-rich ore that are hosted within sequences of volcanic rocks. These deposits are a type of hydrothermal mineral deposits that are formed on the seafloor from black smokers. VMS deposits are mined using underground methods for copper, zinc, lead, gold and silver.
Sedimentary Exhalative Deposits - deposits that formed from the discharged of hydrothermal fluids onto the seafloor. Zinc, lead and silver are the principle metals. These types of deposits constitute > 50% of the worlds zinc and lead reserves and more than 25% of the world's zinc and lead production.
Gold and Silver Vein Deposits - occurs in a variety of mineral deposit types such as porphyry copper and VMS. Most gold deposits are mined using underground methods and are divided into two divisions. Epithermal (shallow) and Mesothermal (deep).
For Epithermal the tonnage for silver is 50 to 500 g/t while for gold it is 1.0 to 10.0 g/t with a typical range between 2.0 and 5.0 g/t. Bonanza type deposits have grades of one or more ounces per tonne.
For Mesothermal deposits gold is the major commodity and most contain some silver, which is mined along with the gold. Good grades are between 3.0 and 30.0 g/t Au and the average is around 5.0 to 15.0 g/t Au.
Skarn Deposit - a type of hydrothermal mineral deposit that develops because of contact metamorphism of limestone rocks and adjacent to an igneous intrusion. They are variable in size and shape and are mined by underground methods. A wide range of commodities are found in skarn deposits including, gold, copper, zinc, iron, tin and tungsten. Most Skarn deposits are relatively small and low to moderate grade.
For me, I like to hold a core position in the junior explores and as the company continues to drill up results I trade around the core. I take some off the table when the stock moves up sharply and buy some back if the stock dips, but only for the right reason. If the drill results did not meet expectations that I will sell it all and look for another potential project generator.
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