Junior Mining — One of the Best Places for Speculators

By Mitchell Clark, B.Comm. — Ahead of the Street column

There are a lot of new financings taking place in the junior mining industry and this sector is hotter than you think. With gold, silver and copper prices relatively strong, it’s a great time to be involved in mining. And, with the regular economy growing at a rate that’s mediocre at best, institutional investors are clamoring to invest in anything generating double-digit revenue and earnings growth.

Of course, it’s not as if you can think of the mining industry as one that’s blue-chip and secure. This is an industry that lives or dies on production growth and the underlying spot price of precious metals. Investor enthusiasm is similar to U.S.-listed Chinese stocks; sentiment, particularly among individual investors, moves in waves.

There has been and always will be a lot of risk associated with the mining business and it’s fair to say that there are a lot of factors that are not within your control whether you’re the miner or the investor. Despite the volatility inherent in the industry, however, there’s no denying the fact that the world needs precious metals in order to survive. Just imagine the voracious demand for precious metals that a country like China requires as 1.3 billion people work to grow their economy at over 10% a year. There’s a reason why Chinese companies are buying up the world’s mining companies — they need secure access to precious metals or their economy gets hurt. It’s a similar story to America’s demand and requirement for foreign oil. Without the commodity, things come to a standstill.

I think there really is going to be a surge in demand for basic commodities over the next decade and raw material prices are going to move up across the board. This applies to oil, precious metals and agricultural commodities. Along with the massive increase in global
money supplies (by governments), the stage is set for an inflation contagion.

Getting back to the junior mining business. As a speculator in these kinds of stocks, the potential returns are just as rosy as the fastest growing Chinese companies. But, as they say…there are no free lunches. There are a lot of pro traders who move in and out of
positions in mining stocks and you can lose your shirt pretty quickly if you’re not paying attention. For risk-capital speculators, however, I can’t think of a better market sector in which to be making some moves. It’s not the kind of sector that you want to load up on, but the fundamentals are right for one or two junior mining opportunities in a risk-capital portfolio.