Hi, this is Sean Brodrick for Uncommon Wisdom Daily.

So far this year, gold and silver have been on a tear! Gold is up nearly 11%, while silver has jumped 16%. But the gains have been even more impressive in junior mining stocks.

One ETF I follow closely is the Market Vectors Junior Gold Miners, symbol GDXJ. It’s packed with outperformers including Alamos Gold, Perseus Mining, Silvercorp Metals, Nevsun Resources, and Minefinders.

Since metals bottomed late last year, these stocks have led the way higher. And while past performance is no guarantee of future success, I suspect this trend could stay in place for a while. The reason? Gold is cheap, miners are cheaper.

Consider this: Canada’s TSX Venture stock exchange, which hosts many of these gold miners, has plunged nearly 30% in the last year, and a staggering 50% from its peak back in March of 2007! This, at a time when gold was increasing in value every year. In other words, these miners are cheap!

They’re not just bargains for investors, but for big-cap mining companies as well. While I was in Vancouver recently speaking at the Cambridge House Resource Investment Conference, Pan American Silver acquired Minefinders for $1.5 billion. That may seem like a lot of money, but for a senior miner swimming in cash, it’s a drop in the bucket. And it may portend even more consolidation in the industry.

If you want to invest in an individual junior miner, there are five important points to look for. One: Pounds in the ground on good real estate. It’s not enough to have a productive mine; you also want that project in a friendly country. Large parts of Africa, and some parts of South America, are simply not mining friendly. But you can find great projects in the United States, Canada, Mexico, Colombia, Chile and other countries, where good companies can thrive and not be used as piggy banks by local politicians.

Once you find the juniors in friendly countries, look for those that have operations and projects near the projects of senior miners. When it comes time for those big miners to expand, you can bet it’s easier for them to look right next door.

The second thing to look for in a junior miner is good management. It’s crucial to have a management team that has built mines before, because they’re likely to be able to do it again.

Tip number three is to follow the money. CEOs, directors and managers are classified as company insiders, and must report to regulators when they buy or sell stock. When insiders own large stakes in the company, they have skin in the game. And when they’re buying in the public market, paying the same price as other investors, that’s usually a bullish indicator.

You also want to look for cashed-up companies. A gold explorer that is cash-poor and has to keep going back to the market is probably not going to do well. You want well-financed juniors that are operationally buffered from market ups and downs and can focus on running drill rigs and expanding their resource.

Finally, it’s important for a junior miner to have a clear path to production, especially with investors so nervous. Failing that, it should have a track record of adding pounds in the ground with the potential to add much more. A company that just has one project and no way to expand is one I want to avoid. A company that has a fat pipeline of projects is much more attractive, not only to me as an investor, but to the senior gold miners who might want to buy it out.

Keep these points in mind as you invest in gold miners going forward. I think there are select junior miners that are well-positioned for truly explosive moves.

http://www.uncommonwisdomdaily.com/5-things-to-look-for-in-a-junior-miner-13668