There is still plenty of value in junior gold explorers - Exploration Insights
The junior exploration sector has seen a flood of investment capital in the last few months as gold prices have pushed to record highs; according to one analyst, the industry remains undervalued and there is further investment potential.
In an interview with Kitco News, on the sidelines of the virtual Beaver Creek Precious Metals Summit, Joe Mazumdar, editor of exploration insights, said that he recently looked at senior producers and compared how much they are spending on exploration and how much is going to cover general and administrative (G&A) expenses.
"There's almost a three to four times more expenditures on G&A right now than in exploration," he said. "That suggests that there's a window where junior explorers, especially in the gold sector, fit."
Although the COVID-19 pandemic has slowed merger and acquisitions activity down in the mining sector, Mazumdar said investors need to have some patience.
He added that it's only a matter of time before senior producers start buying junior explorers. He said that senior companies need to develop a portfolio pipeline to replace the ounces they take out of the ground.
"I continue to look for quality projects that potentially can get taken out and they will ride through this volatility," he said. "If you're an investor, just hold that patience."
As to what metal Mazumdar likes: gold or silver, he said that he prefers silver because of its higher potential in a bull market. However, he added that it is difficult to find a pure silver play in the exploration sector.
For most producers, silver is often seen as a by-product.
"In terms of silver, I go for something like Pan-American. It is an excellently run company," he said.
With so many new investors crowding into the mining sector, Mazumdar said the best piece of advice he can give to the less experienced is to find a project with a good management team.
"Number one, don't chase anything. Don't get caught up in the fear of missing out. Look for quality projects and importantly, quality people," he said. "The management teams are the ones that add value to the asset and they are the ones that mitigate the risks."