What Does a Junior Company Do?
It is a junior company if it is a small business growing or wants to develop a natural resource site or field. Much like a startup, a junior business is looking for money to help it grow or a much bigger company to buy it out.
How to Understand a Junior Company
Junior companies are usually small-caps, meaning their market value is low (usually less than $500 million), and they don’t trade very often (700,000 shares or less per day). You can most likely find them in quests for resources like oil, minerals, and natural gas. People willing to take the risks of running a junior company think it’s an exciting business.
Starting a small business now costs much more than it used to, but the rewards for doing well have also grown.
Many juniors’ first move is to buy places they think have a good chance of having resource sources. After that, the business will do a resource study. Following that, the company will either show the outcomes to owners or the public to show that assets are available.
If the study returns with good news, the small business will either raise money to continue exploring or join forces with a more prominent company to save money. Sometimes, it may also try to sell itself to a more prominent company.
What a junior company looks like
Many small businesses have received venture capital and are looking for money to run their own. A small gold mining business might not own its mine, for instance. The company might instead try to get money to do this part of the business.
There are also a lot of risks with small businesses. The company will lose money and might have to file for bankruptcy if it goes on exploring and finds no materials before its debt is due.
Juniors also respond to the prices of commodities, which means that the prices of their shares drop directly in line with the product they are linked to. That is, the price of gold will affect the share prices of gold juniors, just like electricity prices affect the share prices of oil and gas juniors.
Juniors will have management teams that help them understand local ecology and government rules. These teams will have some experience in the field of research. The companies will also have highly trained workers, like engineers and geophysicists, on staff, so when the properties look good, they can help make the resources work.
Investing in a Junior Company
It’s usually riskier to invest in small businesses than in bigger, more known ones. This is because juniors may still be looking around and not find any tools. People who want to invest in smaller, up-and-coming businesses like these should remember to spread their money around to get the best return on their money.
Private investors are more likely to be interested in juniors because they make investments based on their feelings. Institutional buyers, like mutual funds and hedge funds, tend to put their money into older companies that have been around longer.
The Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSXV) are the best places to find juniors. There are hundreds of mining companies on both of them.
Example from Real Life
One example of a small mining business is Nexus Gold, which is based in Vancouver, Canada. As of September 2, 2020, the company had a market value of $14.5 million and about 253,000 trades per day, which put it entirely in the small-cap category. This business is known as a research and development company that does business in West Africa and Canada.
Nexus has six projects in Canada and five in West Africa right now, which means it is further along the development line than brand-new junior companies. However, the mines in these projects have only shown historical samples or samples that could be made in the future, so they are not fully developed yet.
Conclusion
- Another name for a junior company is a new business that wants to grow a natural resource site or field.
- Smaller businesses try to get bigger by getting funds or selling to bigger businesses.
- Small-cap companies with a market value of $500 million or less make up the majority of minor companies.
- Often, venture capital firms work with young businesses to help them grow and become profitable.
- Junior companies come with many risks because they are new to the market and haven’t always shown that they have assets.
