Narrow Your Focus When Picking Junior Gold Companies

Gold rallied after becoming very oversold and hitting important support at $1675-$1690, but it could retest that low or make a lower low before a sustained rebound begins.

Regardless of the short-term movements, with Gold having corrected 20% and GDX and GDXJ correcting over 30%, there are some great opportunities to buy quality and there is much better value than eight months ago.

There are hundreds of juniors to choose from, so knowing which to rule out can point your research in the right direction and narrow a crowded field of candidates. In other words, by the process of elimination, you can save time and increase your chances of finding a big winner.

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Here are some potential flaws that a junior company could have and possible reasons why their stock isn’t performing.

The first is size. The market and mining industry wants at least 3M oz Au deposits and can produce 100K oz Au per year or more.

If the deposit is less than 3M oz Au, it better be able to produce 100K oz Au per year and have strong margins.

The second is the grade is too low. This is a very common flaw. Unless the deposit can be a heap leach project, a grade of around 1 gram/ton or lower relegates it to the optionality category.

Third, is the CAPEX is too high for a junior company to raise on its own. If a good project requires a significant amount of capital to build, the junior may need to bring on a partner. In a way, these can become optionality plays because the ability to finance the project is leveraged to the Gold price.

Fourth is permitting. If permitting a project is difficult or will require more than a few years, then the market will assign low odds to that project becoming a mine. This is not that common of a flaw, but it does exist. 

I would also include jurisdictional risk here. Avoid areas and regions in which major companies don’t have a presence or operate. 

Last but not least is a lack of upside potential in a deposit or the company. The market always wants growth potential, whether it be in an undeveloped deposit or a mine. 

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