Junior Gold Companies

There are a number of particularly good reasons for investing in Junior Gold Mining companies:

  • Research by Dimson and Marsh with reference to the Hoare Govett Smaller Companies index and the London Business School MicroCap Index shows that, in the U.K., in the period 1955-2000, the average smallcap company beat the market by a factor of 2.83 while the average microcap stock outperformed the market by a factor of ten to one. Subsequent declines in global equity markets and reversal of the size-effect have brought these multiples down but, over a long period, small and micro caps have massively outperformed the market.
  • It is far easier to double or quadruple a company capitalised at £10m-£100m compared with, for example, BHP Billiton, capitalised at around £50 billion.
  • A major new discovery has a disproportionate effect on the market capitalisation and share price of a smaller company.
  • Many majors are likely to make acquisitions to enhance their reserve position. Smaller mining companies with large, proven resources should be the major beneficiaries of this trend.
  • New finds are frequently understated due to the regulations that only proven reserves and measured and indicated resources can be confirmed. Step-out holes in several different directions around a find usually discover further resources with a consequent impact on the share price.
  • With major companies, a proportion of their assets is likely to be in politically risky areas. Selective investment in junior gold miners will minimise exposure to undesirable areas, such as Russia and the Middle East, with their ongoing risk of expropriation or armed conflict.