In anticipation of September’s Federal Reserve monetary policy announcements, many
precious metals
skyrocketed. This substantial increase in the price of precious metals
across the board has certainly benefited many firms, including junior
mining stocks. The main advantage for investing in junior mining stocks
is that they have a higher level of sensitivity to increases in the
price of precious metals. Of course, this also works in reverse, as well
as potential risks associated with operational difficulties.
Junior
mining stocks have to deal with many issues, including the price of the
precious metals, as well as labor difficulties and new regulations.
Also, junior mining stocks that are in the exploratory phase can be
quite volatile due to the lack of production stabilizing earnings.
Because of the lack of steady earnings, the capital appreciation
possible is primarily based on what their exploratory work results in.
If a large amount of precious metals is found, it’s extremely bullish
for junior mining stocks. If, on the other hand, the drill results end
up showing a lack of precious metals, the stock will plummet. These are
risks one must be aware when investing in junior mining stocks.
While
many investors look to gold when thinking about precious metals, I
suggest considering platinum. Of course, this is not an easy task.
Platinum isn’t easy to find or to extract, so one must be careful when
investing in junior mining stocks in the precious metals sector.
One of the interesting
junior mining stocks
in the precious metals space is Platinum Group Metals Ltd. (NYSE/PLG;
TSX/PTM). This is one of the penny stocks involved in exploring for
platinum and precious metals, and it has recently issued some progress
reports.
Because this is an early-stage exploration firm looking
for precious metals, caution is urged. You certainly don’t want to rush
into any junior mining stocks too fast. I would suggest patience, as it
takes many years of work to fully understand the full extent of precious
metals contained within a property. Following the drill results, it
then takes more time to start extracting the precious metals.
Platinum
Group is exploring its Waterberg property. The firm has discovered a
new deposit within the property, announcing an estimate of inferred
mineral resources of approximately 6.6 million ounces of gold, platinum,
and palladium. The company breaks down its estimate as 3.73 million
ounces of palladium, 2.05 million ounces of platinum and 0.81 million
ounces of gold. (Source: www.platinumgroupmetals.net, September 5,
2012.)
Chart courtesy of www.StockCharts.com
I
first brought this precious metals miner to the attention of my readers
back in early August, when it was trading at $0.82. Following the good
news, the stock surged to over $1.30 the following month, a move of over
60%. Obviously, that kind of move is not sustainable, as evident by the
overbought condition the Relative Strength Index. Unfortunately, the
stock was unable to hold above its 200-day moving average, and has since
fallen back, although it’s still substantially higher than the price in
early August.
Junior mining stocks involved in precious metals
can offer a large potential reward, but also possess serious risks. I
like watching the charts, and seeing what other investors are doing with
their money when considering investing in junior mining stocks. The
precious metals sector does have potential pitfalls, so I tend to be
very careful about what junior mining companies I invest in. At this
stage, one needs to understand that there are still substantial hurdles
for this stock to overcome and far more due diligence is required by an
investor considering this stock for their portfolio.
