Investing in gold and silver mining companies is notoriously risky. The volatile nature of the precious metals mining markets mean that you could lose all of your investment if you do not do your own research on prospective investments. Junior mining companies are particularly risky, so beware!
If you decide that you want to invest in gold and silver mining companies, it helps to have an idea of what to look for.
Here is a check-list that will help you when picking gold and silver mining companies to invest in:
- They have a sizeable property or project, for example, a gold deposit of over 2.5 million ounces of gold, or a silver deposit of over 50 million ounces of silver.
- They have spare cash on the balance sheet.
- They have no or limited debt.
- They have a strong management team who have previous experience in mine building.
- They own all or most of the property or project.
- They have low AISC (All-in sustaining costs) - for example, under 900$ per ounce for hold, or under $12 per ounce for silver.
- They have low all-in costs.
- Management or industry insiders own shares in the company.
- They can afford to build the mine, or are able to obtain finance in order to build the mine.
- They have mostly "proven and probable" reserves.
- Their property or project contains metal with a high metal grade.
- The mine can be economically built and operated.
- The mine is located in a mining-friendly jurisdiction.
- The mine is located in a safe part of the world.
- The metal grade recovery rate is high (over 85%).
- The mine has a long mine life (over 10 years).
- The mine has an IRR (Internal rate of return) of over 20%.
- Management have not diluted the number of shares too much - for example, over 400m shares is highly diluted.
- They have positive cash flow.
Mining companies are still quite cheap at the time of writing (November 2017). Investing in high quality miners at a discount is what you should be aiming for.
Best of luck!