This is not an article to explain the leverage that junior exploration stocks offer to the precious metal price. Suffice to point out that last autumn’s stock market crash has left juniors offering arguably their biggest leverage to gold and silver in history.
It is always tough to buy shares at bargain prices because that means investors are either scared by recent news, or have already lost a lot of money in a price sell down. But buying junior exploration stocks is basically an option on a rising gold price that never expires. Is that not what you want in an unpredictable gold bull market? But even if you accept this argument the problem still remains which junior to buy. There are more than 2,000 of them. Buying a small basket of these stocks makes sense to spread the risk which is considerable if placed on one pick. At the Agora financial conference in Vancouver last week I attended a presentation by Stansberry Research entitled ‘My favorite junior miners – our best chance for 1000% gains this year’. Here are their top 10 picks: Riverside Minerals [RRZ.V]; Kaminak [KAM.V], Strategic [SMD.V]; Mirasol Resources [MRZ.V]; Eurasian Minerals [EMX.V]; Rimfire Minerals [RFM.V]; Atac Minerals [ATT.V]; Miranda Gold [MAD.V]; Almaden (AAU:Amex); and Lara Resources [LRA.V]. These are all prospect generators whose business model is to search for mineable deposits to option on to larger companies for development. But there are many other possibilities in the junior mining sector. Personally I own stock in Endeavour Silver (EXK) and Linux Gold (LNXGF.PK). The latter was tipped by 70s star gold analyst Joe Granville in his newsletter three years ago and holds promising claims adjacent to existing gold mines in Alaska. Its share price performance has been very poor but the assets remain unchanged and look even more undervalued now. Endeavour Silver is a Canadian junior silver mining company with all its assets and resources in Mexico and is both a producer and explorer. Like Linux Gold the reserves and properties are impressive but this is a far more active company. However, what I like most about juniors is the leverage that claims and potential precious metals in the ground offer to the rising gold and silver price. This is where the real investment potential comes. You do not necessarily want an ambitious young management team burning up cash prospecting for gold or silver. The chances of finding gold and silver are always slim, and the prospect generators have the best track record for that. But in a gold price boom then exploration claims rise exponentially in value, and silver is leveraged to the gold price. So holding some junior exploration companies – and preferably a basket of them – makes sense if you think that the price of gold and silver is going to take off soon. Disclosure: Long in Endeavour Silver (EXK) and Linux Gold (LNXGF.PK)
