Junior mining companies offer a great way to invest in mining stocks. These companies are relatively new on the scene, usually engaged in the exploration or early development stages. Since many of them have not yet discovered whatever they are mining, their stock usually trades for $5 or less. These penny stocks can be a wise investment if the individual makes educated decisions.
Investors should be aware that many of these junior mining company penny stocks are shell companies. Promoters generate hype surrounding an “imminent big discovery” and everyone rushes to invest their money, pushing the stock price higher. Once the promoter determines the price has reached a nice level, he or she sells held shares and moves along. The other investors are left holding worthless shares of stock, victims of a scam.
To avoid this situation, investors should do their research. Making sure the company is legitimate and has some potential are two things to add to the pre-investment research list. Many of these juniors will not survive the long haul. Investors are taking a chance, so they should not invest all of their money in these junior mining penny stocks.
There are junior mining companies that have potential, so if you plan to invest, look until you find those. Invest in companies that own some land and have obtained the mining rights. Research the geographic area to determine if it is known for being rich in the mineral or substance being mined. Start with a small investment and if it proves successful, invest a bit more.
Due to the risk and volatility present with any penny stock, approach these with caution. Research the history, management, and financials of the mining company to see if it appears legitimate. Doing this homework can prevent you from losing money in the penny stock game.