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The Single Most Important Factor to Any Junior Mining Investment

It's Life or Death for Junior Miners: Know Their Insiders

Written by Luke Burgess
Posted January 11, 2016

A solid management is important for the success of any company. But for junior mining and exploration companies, a competent and effective administration is life-or-death for one simple reason...

Their size.

In many cases, a junior explorer may have less than 10 really active employees (not considering directors).

So investors are essentially banking on the talent, fortitude, and business practices of those few people. Unfortunately, however, these features can often be difficult to come by in management.

Mineral exploration geologist-turned-newsletter editor Brent Cook writes, “Of the roughly 3,000 junior exploration companies combing Earth chasing down anomalies, maybe half can be thrown out because of incompetent or unfocused management.”

Obviously, you're not going to want to invest in a company that's being run by folks under criminal investigation or that have bilked investors in the past or anything like that.

But aside from the obvious, here are a few very important things you want to look for in a junior mineral exploration company's management...

A Solid Track Record

An established track record of past successes could be written off as luck by some. Certainly, making a major mineral discovery in the past is no guarantee of any kind of future success. I am willing to bet there are many who would say success in mineral exploration is mostly luck.

But luck or not, it is very important to the long-term success of a junior exploration company to have access to individuals who have already been through the paces.

Mineral exploration is a long, expensive, and complicated process. It can take a decade (or more) and hundreds of millions of dollars to take a single mineral property from the grassroots exploration stage to a reserve/resource-defined project. So it's important to have someone in your corner who's already faced all the unseen challenges.

The Ability to Promote

A junior mineral exploration firm's ability to promote itself is often overlooked as an important aspect for success. But promotion is a vital part of a junior mineral explorer's success for one reason...

Promotion leads to financing.

Those hundreds of millions of dollars that it takes to develop a mineral project don't fall from the sky — they're raised by the company's management and IR team through multiple financing rounds.

And in the mining industry (and most everything else), it's pretty simple...

No money? No honey!

The most successful junior mining and exploration companies are often those who have been the most successful with promotion. Investors doing research on a junior miner's management team should also look to see how much money they've been able to raise in the past.

Insider Trading

One thing that frequently comes up in a discussion about management is insider buying and selling.

A CEO or director may buy or sell their own company's stock for any number of reasons. It's easy to assume that every time an insider buys, good news is around the corner or that when an insider sells, a drop in share prices is expected.

But insiders will sometimes buy and sell their own stock for practical reasons. For instance, it's not uncommon at all for insiders to clean up the company's share blocks at the end of trading sessions.

Nevertheless, these guys got into the mineral exploration business for the same reason you want to invest with them: to make money. So heavy insider buying is always a good sign for retail investors like us. And it's important to keep an eye on what management is doing with their own personal holdings.

Many junior mining firms are going to be listed on the TSX and TSX Venture Exchange. A great website to track Canadian insider buying and selling is INK Research's CanadianInsider.com. This is a website I use all the time.

For U.S. firms, INK Research has InsiderTracking.com — and there are several other websites to find U.S. insider trading, including SECform4.com.

It is a tired but true saw: Management is key.

For junior mineral exploration companies, a solid management can mean wild success. But incompetent leadership can fumble up even a sure thing.

Know your insiders.

Good Investing,

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Luke Burgess
Energy and Capital

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