mines prices markets

Here are five factors suggested by Casey Research to consider before buying gold mining companies:

Cash flow – Does the company have strong cash flow and cash reserves?

Income generation – Does the company have good income from producing gold out of the earth and what is the cash cost per ounce?

The quantity of proven or measured reserves in the ground – How much of the gold in the ground has a 90% chance of recovery?

Little or no hedging – How much hedging is the company involved in? Some companies hedge to raise capital but this often proven to be a bad long term strategy.

Low debt levels – Nothing gets a company in more trouble than too much debt.

Junior gold mining stocks offer more upside potential but they are also more risky. Unless you are really an expert in the mining industry it is suggested that a portfolio only include about 5-10% of junior mining companies. A safer bet is to add physical gold and senior mining companies. 

Junior mining companies are characterized as small scale production mine with revenue or an exploration company with no revenue. Exploration companies have more risk because they quickly burn through a lot of cash trying to discover large gold deposits. Senior gold mining companies are less risky as they sit on vast reserves and have developed mines with a steady revenue stream.

However, junior exploration companies are a major source of new supply. They find new attractive land, determine whether a property is economically viable, and bring mines into production. They are critical for finding new discoveries and offer more growth potential.