Symbol Lookup »
($$) Newsletters »
Self Directed Investor Inc
Newsletters ($$) »  Email alerts (free) »  RSS »
SDI: "Empowering investors with ideas and education"
$$  Newsletters  |  FREE   ♦ Articles · Videos · Calls  |  TOPICS  ETFs · Earnings · Economy · Energy ·  ♦ Gold · Income · Personal Finance · Trading


The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

Comments are welcomed!

Saturday, June 7, 2008

Revisiting the Investment Rationale for New Jr. Gold Producers

When I first set up this web site, I outlined the rationale for my strategy to focus on emerging junior gold producers in the first post titled, "Why Near Production Junior Gold Miners?"

It is important to occasionally remind readers of the rationale of the strategy, especially when the emerging junior gold producing company share prices tread water.

The following chart illustrates the life cycle of a junior mining stock with the share price on the Y axis and chronological time on the X axis.

The first stage of a junior miner is the discovery stage. This is the stage where companies are identifying resources and proving up the resource if the preliminary data from the drill cores look promising.

Many companies see a sharp rise in the share price as they prove up resources and many junior mining investors like to pick up companies at this stage. If the resource proves up, these investors can make a lot of money.

During the second stage in the life cycle of a junior mining company, the resource must be assessed to see if it is economically feasible. Share prices often move down during this stage. There is a lot of work (and risk that the resource fails feasibility) that goes into this assessment. Important items include the projected price of gold, projected cost of production, the grade of the ore (how much mineralization is in the rock), and available infrastructure (road access, mill construction, etc.).

Development includes engineering and geological activities such as geologic modeling, ore reserve estimation, geostatistical data analysis, pit/underground mine optimization mapping, pit/underground mine design, detailed mine planning, continued exploration planning, mining method optimization, mill design and construction and several other actitivites.

The next stage begins with the decision to produce and commencement of production. In practice, this stage overlaps with the development stage as mill construction follows the decision to produce. The key point in this stage from an investment standpoint is between the decision to produce and the first pour.

Overlaps also exist between the discovery stage and the production stage as many junior gold miners commence production before they fully prove up the entire resource. In addition, the acquisition of nearby properties with promising resources are often turned into proven reserves while production is expanded.

The risk of failure for companies that have not yet commenced production is extremely high. Companies that have executed well on identifying resources and moving into production have a lower risk profile because they have proven their ability to bring a project to profitability.

My preference is to invest in emerging junior gold producers that have just commenced production, have a rich resource base of operations, and either own several properties or have a wide sphere of nearby potential properties they might acquire or develop an arrangement to process the reserves.

Junior gold miners in the pre-production or early production phase can also be a hedge against a falling gold price.

Mining is a risky business. A lot can go wrong. But the reward to risk ratio is better for emerging gold producers over the next 6-18 months than many other investment options in my opinion.

There are other important characteristics I look for in an emerging junior gold producer, but these are the major considerations related to the life cycle of a junior gold miner.


Gold Stock Strategist


MontyHigh said...

Hmmm... well, a nice intro, but...

Doesn't mention financing. This is critical to exiting the advanced development stage and starting the production phase. Seems really important whether a Jr gets and what kind of financing it is. How about writing a piece about financing the effect of warrants on stock price?

Also, how about updating your graph (and discussion) with a clear indication of where in the graph you think good entry (and exit points) are available.

Also, how about providing a good exemplary graph of a stock that has successfully navigated the pattern.

Finally, my experience says that that there is a good "anticipation" runup to the production announcement and then its usually downhill for a quarter or two as startup problems lead to disappointing financials.

Love your web site and hope this is helpful.


goldstockstrategist said...

Great points Monty! I agree with them all. Financing considerations and pre-production runup are important items to pay attention to when investing/speculating in emerging junior gold producers.


Gold Stock Strategist

Anonymous said...

Good day !.
You re, I guess , perhaps very interested to know how one can collect a huge starting capital .
There is no need to invest much at first. You may commense earning with as small sum of money as 20-100 dollars.

AimTrust is what you need
The company represents an offshore structure with advanced asset management technologies in production and delivery of pipes for oil and gas.

It is based in Panama with offices everywhere: In USA, Canada, Cyprus.
Do you want to become an affluent person?
That`s your chance That`s what you desire!

I feel good, I began to get income with the help of this company,
and I invite you to do the same. It`s all about how to choose a proper companion who uses your savings in a right way - that`s AimTrust!.
I make 2G daily, and my first investment was 500 dollars only!
It`s easy to get involved , just click this link
and lucky you`re! Let`s take our chance together to get rid of nastiness of the life

Anonymous said...

You may probably be very curious to know how one can make real money on investments.
There is no need to invest much at first.
You may commense earning with a money that usually goes
on daily food, that's 20-100 dollars.
I have been participating in one company's work for several years,
and I'll be glad to share my secrets at my blog.

Please visit blog and send me private message to get the info.

P.S. I make 1000-2000 per day now.

Gold Price Chart--Interactive

HUI "Gold Bugs" Index--Interactive

Breaking News!

    follow me on Twitter

    Gold & Mining News

    Seeking Alpha on Gold and Miners

    Lijit Search

    Disclaimer and Copyright

    Gold Stock Strategist receives no payments from companies in exchange for coverage. The Editor does own and authors may own and trade stocks they mention.

    Nothing in is intended to be investment advice, nor does it represent the recommendations by or other authors.

    The reader accepts information on the Gold Stock Strategist with the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action.

    The information on the Gold Stock Strategist is solely for the entertainment of the reader and authors.

    The Editor reserves the right to delete material deemed inappropriate for

    ©2008-2009, Nystrom & Associates LLC, All rights reserved and protected under US copyright law.

    FEEDJIT Live Traffic Feed

    SDI Featured Articles | Self Directed Investor | Copyright © 2008 - 2009, All Rights Reserved

    Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of Self Directed Investor, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will Self Directed Investor, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

    SDI is associated with: -- participation in SDI's conference calls is available exclusively to ValueForum members. | -- weekly SDI videos are produced by Market News Video. | -- stock quote content is at least 20 minutes delayed and is powered by Ticker Technologies. | -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.