The four categories of gold stocks are majors,mid-tiers,junior miners,and exploration. Here we will break down what defines each category.
Majors: Are the biggest gold companies that operate several mines around the world and produce greater than one million ounces of gold annually. Investors buy majors for their cash flow and growth through new mines, mine expansions, and acquisitions. With strong looking balance sheets and some already making dividend payments, they will look to increase or maintain their depleting reserves by acquiring mid tiers and juniors. However, this category does not offer the most leverage to the increase in gold price and is essentially just an investment in the gold price appreciating further from current levels.
Mid-tiers: Are what we call the middle guys and produce anywhere from 200,000 to 1 million ounces of gold per year. Management is at the stage of growing the company to become a major by acquisition of juniors and/or the development of their own pipeline of properties. In comparison to the majors these profitable companies are underfollowed by the investment community and can offer great value to the astute investor. The mid-tiers provide more leverage to the increased price of gold and offer less risk then junior miners and exploration stocks, but they still do not offer the life-changing returns of a junior mining stock.
Junior Miners: Are the small producers who don’t get much market attention due to a lack of following by investors, newsletter writers, and analysts. Most operate only one mine and can produce up to 200,000 ounces of gold a year, but there are very few producing at a rate that is greater than 100,000 ounces per year. These companies have the potential to be taken out by mid-tiers and majors and/or make new discoveries on their other properties that will add significant market value to their stock and could provide life-changing returns if you own enough shares. However, they are still not the lottery tickets of the mining sector.
Exploration plays: The highest risk but also the highest reward comes with exploration plays. Exploration plays can be thought of as the lottery tickets, but you can still be quite profitable investing in them even if they don’t make the next big find. These companies have not poured a single ounce of gold but hope to develop their discoveries into production one day in the future or be taken out by a major or mid-tier. Because these types of companies offer the life changing returns everyone dreams of, much more information on exploration plays will be discussed throughout the e-book that is also applicable to the other categories.