— “Ahead of the Street” Column, by Mitchell Clark, B. Comm.
It takes a fair amount of expertise to be good at trading junior mining stocks. Along with U.S.-listed Chinese stocks, this sector is going to be hot over the next couple of years. In a way, you really have to approach the mining industry from the prospector’s view. There could be gold in those hills; then again, there might not be enough of it to make it worthwhile. In the end, the prospector’s approach is the same as the speculator’s approach — you have to spread your risk around and be ready to jump ship at any time.
If you find a junior mining stock that’s going up in price on the stock market, take note of it immediately. In my experience, mining stocks can be some of the best momentum trades of all — even more so than a Chinese technology stock.
What you want in a junior mining opportunity for investment is a company with a reputable management team, which has a bunch of money in the bank and owns a great property. For me, I like to see a miner that’s already producing from its property (or properties) and is doing a lot of development work in the surrounding area. A small, existing producer that’s prospecting for more precious metals is a great asset, because if it increases its reserves, the company automatically becomes an attractive takeover target for the big producers. Big miners always have access to a lot of capital and are always looking to expand their production. Even with their financial resources, there’s a lot of competition for good properties in the world. In any given location, there’s only so much gold that can be extracted, so the big players are always looking to buy the small players. It’s the only way they can grow.
Really, it is an exciting time to be in the mining business. Spot prices are strong and the prospects for higher spot prices are good. There isn’t a lot of growth from Main Street businesses these days, so investors are becoming more interested in precious metal producers. Finally, there’s the inflation/weaker dollar/hedge myself against the end of the world scenario that just can’t be denied. So, the fundamentals for the mining industry are pretty solid now.
If you’re prospecting for stocks in this sector, I really think it’s wise to choose a couple that have a track record of success. I’m not just referring to a successful track record of production; I’m talking about a track record of success on the stock market. Like I say, there are no better momentum trades in the stock market than in mining stocks. There aren’t a lot of them out there, but they certainly do exist.