If you’ve ever had the pleasure of meeting someone who runs a budding junior mining company, you can tell they operate on a different type of octane. Junior mining companies are inherently adventurous, but it’s the kind of adventurous spirit that plays a significant role in the industry. The mining sector is built on individuals willing to take substantial risks for the chance of a big payout at the end—if everything works out. The odds are stacked against them, with only about 1 in 5,000 to 1 in 10,000 exploration projects making it to production. It turns out, mining isn’t as easy as the game Minecraft makes it seem. Let’s take a closer look at who is truly driving the mining industry.
What is a Junior Mining Company?
A junior mining company is a small firm that is developing or seeking to develop natural resources, such as minerals, natural gas, or oil. Specifically, a junior mining company has a low market capitalization of under $500 million and focus on the early stages of mineral exploration. Their primary objective is to explore, find, and prove mineral deposits through sampling, drilling, and various studies, typically with the end goal of selling their project to a major mining company.
The first step for many junior companies is to acquire properties that they believe have a high probability of containing resource deposits. Once the properties are secured, the company conducts a resource study. The results of this study are then shared with shareholders or the public to demonstrate the availability of assets.
If the study yields positive results, the junior company will raise capital to proceed with exploration or seek a partnership with a larger company to reduce costs. In some cases, the junior may also pursue a buyout by a larger company.
How do junior companies get capital?
Juniors can raise money in a few different ways.
- Debt Financing: This involves borrowing money from lenders and repaying it with interest over time. It’s typically suitable for companies with steady cash flows that can meet repayment terms.
- Equity Financing: By selling a portion of the business to investors, juniors can raise funds for expansion and growth. Investors receive a share of profits and a say in management. While this method can be more flexible, it may also be costlier in the long run due to profit sharing.
- Government Grants and Incentives: These funds are available to companies meeting specific criteria, such as job creation or sustainable practices. Grants do not need to be repaid, providing valuable support, but they can be highly competitive and require strict eligibility.
- Joint Ventures and Partnerships: Collaborating with other companies allows juniors to share resources and reduce operational risks. This strategy can help them access new markets but requires careful negotiation and management.
- Crowdfunding and Alternative Financing: Raising funds from multiple investors through online platforms can be a quick way to secure capital, particularly for those struggling with traditional financing. However, these options can come with higher risks due to less experienced investors.
What Role Does a Junior Company Play in the Mining Industry?
The most important role that junior companies play in the mining industry is taking on high levels of risk. These companies are responsible for finding, exploring, and developing both brownfield and greenfield sites to determine whether their deposits are economically viable for mining. This process can take years to complete, with no guarantee of success.
Why Do We Need Junior Companies?
The mining industry relies on junior companies to discover, explore, and prove mineral deposits so that major companies can step in and do what they do best: mine. While there is still some risk for the majors—since no deposit is the same and profitability cannot be guaranteed—this risk is significantly reduced after the exploration phase is complete.
Without junior mining companies, the industry would lack new deposits to develop, which could lead to a collapse in mining operations throughout the world. Continuous exploration and research into new mineral deposits are essential; our society depends on finding new resources from oil, gas, and minerals. These are the fundamental resources that make our society tick—if it can’t be grown, it must be mined!