Hi, my name is John and I’m an addict.
My descent into helpless obsession began, as it has for many others, with a tiny little stock that got very big very fast.
Its name was Great Bear Resources, and it was a Canadian gold explorer that Jay Taylor’s Gold and Energy Stocks newsletter profiled in 2018. Jay noted that Great Bear was finding gold – lots of it — with every hole it drilled. He also noted that the company’s property was in Canada’s Red Lake district, home to some of history’s most prolific and profitable mines. It was right near a highway and power lines. And its management was credentialed and articulate.
Together these things formed a nice little package — but a very early-stage and therefore risky one. So I tossed a “lottery ticket” sized bet of $4,000 its way, buying 10,000 shares at US$0.39 per share.
In the ensuing year Great Bear kept finding gold, and its CEO told his story to any podcaster who cared to listen. The stock began to rise, hitting $2 and then $5, which made it a rare and coveted 10-bagger.
The next couple of years were dramatic, with the pandemic and all, so I won’t bore you with the stressful details. Suffice it to say that Great Bear kept finding more gold, its stock bounced up and down in ways that destabilized its investors’ limbic systems, and at long last, industry giant Kinross Gold stepped in to buy Great Bear for $23 a share, producing a 58-fold profit for those who bought on the initial recommendation and stayed the course. I’d sold some of my shares on the way up, but even so my $4,000 had become $160,000.
And so I was hopelessly hooked, fated to spend the rest of this life seeking the next 50-bagger dopamine rush. But so far, the search hasn’t gone well. My trading account looks like a battlefield strewn with the corpses of exploration companies that seemed, briefly, like huge potential winners but turned out to be something less.
But the hunger remains. At any given time, there are ten or so juniors with flashes of potential greatness. I and the other “investors” in this space pour over promising juniors’ news releases for hints of magic, with the addict’s certainty that the next hit is out there somewhere. It has to be.
At this point, 90% of you are appalled and want nothing more to do with this sector (and maybe the writer). But 10% of you are thinking “50 times my money … just a few of those would change everything…”
For the latter group, I’m both sorry about getting you into this and happy see more potential friends join this odd little subculture. For you, here’s a very brief primer on junior mining stocks:
A successful junior miner has:
Legit management. People who have previously found a deposit and turned it into a profitable mine or nice buyout offer are a vastly better bet than someone who’s in his first rodeo and making beginners mistakes. And a CEO with a background in geology is more reassuring than one from, say, corporate law or venture capital.
Location. A prospective mine that’s in a favorable jurisdiction like Canada or the US is better than one in a country with weak laws and unstable politics. Close to roads and power lines is better than far away. And a temperate climate with a long mining season is better than searing desert or frozen tundra where everything stops for half the year.
And now for the big one: drill results. To determine what’s below their feet, geologists drill holes and extract cylindrical rock samples, which they analyze for traces of valuable metal. They plug hundreds of such samples into models that build a 3-dimensional picture of a deposit. Each set of drill results increases the resolution of this picture, and once enough data accumulates, a “maiden resource” outlining the number of ounces likely to be there is announced. This is when the takeover fantasies become real.
A general understanding of drill results is thus crucial. For a given drill hole, two numbers matter most:
Grade. This is how many grams of metal there are per ton of rock intersected by the drill. In many cases readings of 1 gram of gold (or the equivalent dollar value amount of silver) are okay, though obviously richer is better.
Width. This is a measure of how wide a vein of metal is within a drill hole. It can range from fractions of a meter to hundreds of meters, with longer being better.
To illustrate these concepts let’s compare two potential “next Great Bears” which also happen to be extreme examples of impressive but imperfect drill results.
New Found Gold (NFGC) has a property in Newfoundland that appears to host several big deposits. The gold it’s finding is mostly in rich but narrow veins. Note in the following drill results that the grade (shown as Au (g/t), which stands for grams of gold per ton of rock) is extremely high but the interval – the width of the gold veins intersected by the drill – are narrow, in some cases less than 1 meter. These are great results, but wider intervals would be reassuring.
Contrast this with Snowline Gold (SNWGF), which has a massive property in Canada’s northern Yukon region. Note that its grades are low, in some cases below 1 gram per ton. But the intervals are massive, averaging more than 100 meters. This is also a great drill result, though higher grades would obviously be better.
There’s a lot more to consider before actually buying a junior miner stock but suffice it to say that drill results like the above are a good starting point for a deeper dive.
This article is an intro to the junior miner concept, to be followed by closer examinations of individual companies. I’ll make you this deal: From now on, I’ll profile either junior miners I already own and am thinking about buying more of, or juniors that I don’t own but am considering buying. We’ll go through the thought process together and construct a portfolio that (addict’s promise) will eventually hold several ten baggers and at least one 20 bagger. 50 baggers are lightning strikes, so can’t be promised. But who knows? They do happen.
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