MARTIN MITTELSTAEDT|Columnist profile
Globe and Mail Update
Published
Last updated
Friday, Feb. 17, 2012 7:26PM EST
While Canada’s stock market is best known for the dominant market position of its sober-minded and conservative banks, there is a Wild West to the country’s equity market: junior mining exploration companies.
When it comes to junior miners, Canada has international bragging rights. The Toronto Stock Exchange and the smaller Venture exchange are home to the largest conglomeration of small-capitalization mining companies on the planet.
Numbering approximately 2,000, junior miners are the most common type of stock found in Canada. They offer investors a binary outcome: Companies that eventually find economic deposits offer some of the best prospects for huge capital gains of any category of investment or speculation, while those that fail offer the prospects of huge wipeouts.
Given this stark reality, the key to making money with junior exploration companies is stock selection. Which of the multitude of companies kicking over rocks in remote parts of the world stand the best chances of finding a deposit rich enough to justify a mine and making money for investors?
With that in mind, The Globe and Mail turned to some of the pros in the business – mining analysts who know the sector best – and asked them for their best investment ideas.
Be forewarned. Exploration companies aren’t for the faint of heart. The vast majority fail to find anything of value. As well, many of the companies sport tiny capitalizations and low trading volume, suggesting investors should proceed with caution because of the difficulty of taking positions and liquidating them without causing profit-sapping market moves.
Michael Fowler, Loewen Ondaatje McCutcheon Ltd.
Mr. Fowler also likes Moneta Porcupine, which he says trades at a low multiple to the amount of gold in the ground backing each share, a common way of determining the relative value of mining exploration companies. He says Moneta is, as of yet, little known among investors and offers the possibility of more good news should there be further exploration success.
He also gives the nod to Fire River Gold (0.22 +0.005 2.38%)and Northern Freegold. (0.28-0.01-3.45%) Fire River has a small, producing mine in Alaska that is in the process of ramping up to full commercial production. The company bought the property and infrastructure on the cheap in 2009 for $3.1-million in cash and shares, but estimates the replacement value of mining equipment and infrastructure alone at $150-million.
Northern Freegold has a gold property in the Yukon. The company says the property has a one-million-ounce gold resource, and Mr. Fowler said there could be further upside with future drilling results.
In the interest of full disclosure, Mr. Fowler says Loewen has done investment banking work for all three companies.