Are junior mining stocks for long term investors too?

Question

For the investor who chooses to invest in a lot of junior mining stocks, is it discouraged to use a buy and hold approach? I'm particularly focusing on silver juniors.

Answer 1

There are a few factors affecting junior miners long term.

Where are metal prices going near, middle and long term?
Gold for example is used as a hedge against inflation and that includes the possible further decline of the dollar and it's also used in jewelry and for that there is growth in China and India.
Silver has industrial applications along with jewelry. Base metals have seen a lot of growth, again from China/India and for at least some of them there is a supply issue long term. I'm most familiar with copper and from what I've seen, the supply side can't keep up with a 3% demand growth after another 5-10 years.

Does the junior have something more in the works or are they just working/developing one mine?
Some of them are working one mine and eventually that mine will play out so if they don't continue to look for additional properties, their revenue will be flat over time.

Is there potential for the junior to get bought out?
Typically, the juniors start the development of the project and when it becomes closer to production, they get bought up by one of the majors. Occasionally, they will find a partner for cost sharing and go it alone but that is less common. A buyout or partnering can cause a big jump in the stock price but I wouldn't buy on that hope unless there is evidence that it will surely happen.

I have a bunch of shares in a copper/gold/moly junior who owns 12.5% of a working mine for cash flow and they are 100% owners of another property they are trying to develop. Seeing as it takes 6-8 years to develop a property, this can be a long term hold but with the risk that metal prices may decline but with the possible benefit in the nearer term of forming a joint venture and getting an infusion of cash from a partner.

So while the current numbers (balance sheet) on a company is important to determine if they manage the company effeciently, I think the future factors are more important. Juniors also have inherently higher risk so being overweight in miners can be risky.

Answer 2

This question - whether to buy and hold junior mines or whether to trade them short-term - was recently put to Paul van Eeden, a respected mining analyst who focuses on junior exploration plays predominantly in the precious metals sector.

His answer? "I hold them for two, five and even 10 years," he said, citing one he'd bought at $.25 eight years ago that changes hands for $2.00 today.

Van Eeden doesn't hold passively. He explained that a chosen junior must continue to forge new partnerships and joint ventures for its ongoing exploration program, and an investor must constantly monitor this progress.

Answer 3

Investing in stocks is not just about buying and selling. You need to know more. Market capital, EPA, inside trading, analyst's estimate, balance sheets etc. Gotta be careful.