Gold mining companies are generally categorized in two groups. Senior and junior miners.
A senior mining gold company has an established revenue stream from producing gold. The company may even have a strong enough balance sheet where it’s able to distribute a dividend to its investors. These gold stocks are in the process of growing reserves and increasing production.
A junior mining company is one that generates a small or no revenue from the production of gold. The focus for them is exploring and trying to find deposits of gold. They may own rights to a property but have yet to mine and produce gold at the location.
Junior miners are considered risky investments because their valuation is based on the potential and not necessarily revenue. Since revenues are low, most junior mining gold companies rely on financing, which could lead to dilution and debt accumulation.
If investing in junior mining gold stocks is risky, why bother with them in the first place?
Well, during periods when gold is performing well, junior gold miners perform exceptionally better.
For example, in 2016, the VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ) returned 72.94%, that same year, SPDR Gold Shares (NYSE: GLD) returned 8.03%.
Compare that to the VanEck Vectors Gold Miners ETF (NYSE: GDX) which returned 52.92%
As you can see, when gold prices are surging gold junior miners shine the brightest. However, during periods when gold prices are declining, gold junior miners tend to get beat up more severely.
Let’s take a look at some of the best gold junior mining companies in the market.
The Top Junior Mining Gold Stocks
Golden Star Resources Ltd. (NYSE: GSS): A gold mining company with two producing mines on the Ashanti Gold Belt in Ghana. It is transforming into a high grade, low cost, non-refractory gold producer. In 2017, the firm was on track to produce 255- 280,000 ounces of gold at a cash operating cost of $780-$860 per ounce.
At the end of 2017, the firm had a market cap of $440M. The firm had operated with a positive margin, positive operating margin, and positive growth margin.
Seabridge Gold Inc (NYSE: SA): The firms resource base of gold, copper and silver is one of the world’s largest.
The company has 100% ownership in KSM and Courageous Lake, both located in Canada. KSM has proven and probable reserves of 38.8M ounces of gold. Courageous Lake has 6.5M ounces of proven and probable reserves.
More than 40% of the company stock is owned by financial institutions, and nearly 30% of the company stock is owned by insiders.
In addition, the firm had a quick ratio of 2.9. The quick ratio measures the dollar amount of liquid assets for each dollar of liabilities. Seabridge has $2.90 of liquid assets available for each $1 of current liabilities.
Alio Gold Inc. (NYSE: ALO): A gold mining company that focuses on exploration, development and production in Mexico. Its key assets are 100% owned and operating, San Francisco Mine in Sonora, Mexico. Its Ana Paula Project in Guerrero, Mexico, is in its development stage.
The production guidance in 2017 for the San Francisco Mine was 88,000 – 90,000 ounces of gold. The company believes that can be increased to an average of 103,000 ounces per year from 2018-2023, at an average cost of $900 an ounce of gold.
Major shareholders include: Lundin Group, GoldCorp, Konwave, Aga Nola, Sprott, Sentry Investments, and Sun Valley.
Gold Standard Ventures Corp (NYSE: GSV) An advanced stage, gold exploration company focused on distract scale, gold discoveries in Nevada in Nevada.
Its flagship project is the Roalroad Project, located on the Carlin Trend. The Carlin Trend is recognized as the most prolific gold mining belt in the Western Hemisphere with 88M ounces of gold mined from 1965 to 2016.
Gold Standard is the second largest land owner on the Carlin Trend behind Newmont Mining and ahead of Barrick Gold.
The company stock is heavily owned by financial institutions, as they own more than 45% of the shares.
Gold Resource Corp (NYSE: GORO): A company that explores for and produces gold and silver in Mexico and the United States.
The last time the firm had to raise capital was back in 2010. It has zero long term debt and gives investors a dividend option. The firm offers a $0.02 annual dividend. In addition, shareholders have the option of converting their dividend into gold or silver bullion.
Institutions own more than 37% of the company stock.
A Diversified Approach To Investing In Gold Junior Miners
Most gold junior mining companies fail. That said, you should not put all your eggs in one basket. Buying a basket of gold junior mining stocks is the safest way to go.
Now, if you’re unsure on which to go with, the simplest solution is to buy a junior gold mining ETF. The VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ) invests in a basket of junior gold mining companies.
Its portfolio consists of medium, small, and micro cap junior gold mining companies.
Its largest holdings include: Gold Fields Ltd, Yamana Gold Inc, Kirkland Lake Gold Ltd, Iamgold Corp, Northern Star Resources Ltd, Sibanye-Stillwater, and B2Gold Corp.
Final Thoughts
Investing in junior gold miners is risky. Historically, during periods where gold performs well, junior gold miners outperform the yellow metal, as well as, outperform senior gold mining companies. However, the same is true on the downside. When gold prices fall, junior gold mining stocks perform much worse.
You’ll want to sift through the company’s disclosure documents. See what kind of projects they are working on, and how their cash situation looks like. Since many of these firms rely on financing to grow their operations, its critical you pay attention to their short term and long term debt.
You’re really investing in the management of the company and whether or not they can execute the firms objectives. That said, look into the track record of the management.
Have they had success or failures at other publicly traded companies?
These are questions that you should be addressing before investing in junior gold mining company.
Many of the best junior gold mining stocks are owned by institutions. In addition, these companies often partner with other senior mining companies.
If you think trying to pick a junior gold mining stock is too risky, consider investing a junior mining ETF that owns a basket of the top junior gold mining companies.
