Pacific Gold Corp fka PCFG

[FrankMD]

Article: Why Junior Gold Miners?


When investors seek more aggressive exposure to the price of gold, they will often purchase shares in junior mining (or mid-tier) companies. These are companies that are either exploring for gold or in some stage of the commercial production process.

Junior gold miners provide the possibility of significant upside leverage to the price of gold. For example, if gold is selling at $1000/oz and the cost of underground production is $500/oz, there is upside leverage of $500/oz. Surface gold or open pit gold can lower production costs to as little as $100 to $300 per oz., thereby increasing the possibility of upside leverage. What makes these scenarios attractive is that even if the price of gold were to decline, the potential for upside leverage still remains.

There are an estimated 3000 junior mining companies in various stages of development. These include:

Exploration
Developmental
Proven reserves
Near-term production
Commercial production
The challenges faced by junior gold miners can include:

No access to investment capital
No geological support to target additional exploration
No drilling support to confirm additional discoveries
No expertise in permitting, bonding, legal and accounting issues
No ability to take their project into commercial production
Sifting through and analyzing some 3000 junior mining companies in various stages of the development process can be a daunting task. Circumstances can change quickly. Risks can run high. But so can the rewards. If a junior mining company has strong management, solid financing and a significant number of mineable and proven reserves, its potential for success dramatically increases.

Because junior gold miners start out with substantially lower market caps than major gold miners, and because significant risk is often factored into their share price, their first major discovery or the achievement of commercial production can multiply their share price.

A junior miner whose share price doubles is said to be a “two bagger”. If the share price increases five-fold it is called a “five bagger”. If the share price increases ten-fold it is called a “ten bagger”. Very few junior miners ever achieve this mutiplier effect because of the risks associated with the mining sector in general, and junior miners in particular. Less than 5% of all junior miners will ever achieve commercial production.

For those junior gold miners who achieve commercial production, the rewards can be substantial. If a junior miner reaches 50,000 oz/yr of commercial production they are considered to be a mid-tier producer. There are an estimated 50 mid-tier producers. When a company reaches 1 million oz. of commercial production each year they are considered to be a major producer. There are approximately 20 major producers.

With junior mining companies, circumstances can change quickly. Risks can run high. Due-diligence is the key to success.


http://goldenphoenix.us/whyjuniorgoldminers/