Page 19 - Introduction to investing in Gold

The Beginner's Guide to Investing in Gold
The Juniors
The Juniors are smaller mining companies that are explorers rather than producers. These are typically the smallest companies in the sector with market values of less than $20m.
Many have already burnt through millions of dollars on exploration. Usually watching helplessly as their share prices tumble to rock bottom levels, some even teetering on the brink of bankruptcy.
It’s really all about potential. Companies with potentially large deposits of gold could well get snapped up by the majors at very attractive prices.
The problem is that many investors are fooled by large resources. Often, a large resource can come from many different deposits, but the majors want large single deposits — ideally open in all directions, which means there could be a lot more gold there.
Before kicking off the next chapter, I think you’ll find it useful to have a broad understanding of the different kinds of mining companies. Here is a snapshot of each one and the different risks associated with investing in each:
1.Junior Explorers – high-risk exploration companies that take on a lot of exploration risk (they may find nothing).
2.Junior Developers – they’ve made a discovery but don’t have a processing plant in place. They invariably have not built the mine either. Here, you’re taking various types of risks. Firstly, they need to raise the capital to build the processing plant as well as the mine. If that’s done, you’ve then got the construction risk.
3.Producers – they’ve built the mine and plant and are producing gold. With these, you are taking on production risk.
4.Royalty and Streaming Companies – these companies typically lend to other companies when they are developing a project, and, in return, they get a royalty or a stream. It obviously depends on the terms of the agreement, but generally, you are taking a risk on the gold price and that the projects will actually move into production (they are likely to have projects in different stages of the “life-cycle”).
The risk and return vary enormously between these companies.
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