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Junior mining companies serve the function of filling the pipelines that feed the major mining companies depleting reserves, and are said to be responsible for roughly 70% of all discoveries made. This is not surprising, considering they spend billions of dollars on exploration each year.
Since 2004 the exploration budgets of junior mining companies have outpaced majors, and in 2007 trumped majors and all other groups by $2.2 billion. However, due to tough market conditions in late 2008 and into 2009 junior exploration budgets were cut by more than half and are now trailing those of the majors for the first time in five years.[i] Nonetheless, with the experienced management teams and amount of exploration dollars being spent by junior mining companies, there is bound to be a 21st century discovery that matches up to those of the past. The problem investors have, is finding those rare companies that will make the next big discovery.
To name a few major discoveries made by Canadian junior companies in the ’80′s and ’90′s that rewarded shareholders handsomely are the discoveries of; Eskay Creek (gold & silver, 1988) Lac de Gras (diamonds, 1990/1991), Voisey’s Bay (nickel, 1993), and Pierina (gold, 1995). To name a few of the more recent discoveries are Fruta del Norte, Canadian Malartic and La Bodega, which are all gold discoveries made in 2006.
Investors who were fortunate enough to invest in the junior mining companies that made these rare discoveries saw 1,000% plus returns in their portfolios in short order. But investors must realize that junior mining stocks are the riskiest investment of any mining stock. Sure a really good one will make up for those that don’t make a discovery, but sometimes the risk is not worth the reward when you are only making up for your losers.