Gold is mined by different-sized companies, from junior micro-cap companies to major mining houses with a market capitalisation greater than US$10 billion. This presents a variety of mining stock options for potential investors to choose from.
Given their small market capitalisation, junior miners – those companies producing less than approximately 150 oz/year – experience the greatest volatility in stock price but also offering a higher risk / reward investment product. Mining is a very capital-intensive industry, costing a lot of money to maintain and expand operations. Working capital is critical for all mining companies to survive, and this pressure is felt most acutely by the junior miner. Despite this, investors seeking to maximise producers’ leverage to gold often favour juniors.
On the other end of the spectrum, major, established mining companies provide greater stock market stability, and have a greater ability to weather any potential downturn in commodity prices that can be fatal to smaller companies. These stocks, however, do not change in value as dramatically as smaller stock companies, offering typically lower but safer returns.
Offering well-balanced investment options, the attractiveness of mid-tier miners has surged, as these companies are well positioned for strong production growth. While major miners struggle with declining production and in finding enough new gold to offset depletion, mid-tiers with strong assets are increasing gold output and seen as the sweet spot for stock-price appreciation potential.