For those who do not wish to buy gold coins or gold bullion due to high costs of storage and insurance, gold stocks are a great alternative. When a gold stock is purchased, it is usually shares in a gold mining company. However, not just any old shares will do. Investors should know what to look for in a gold mining stock.
When looking at junior and mid-cap gold mining company stocks, there are a lot of competitors. Investors should first investigate the grade of gold that the company has because that makes a large impact on how the shares perform, in terms of price. Investors should look for an open pit mining company that has 3-4 g/t gold. Companies with underground mines should have 5-10 g/t gold.
The amount of resources and/or reserves is another important criterion. The larger the low grade open pit mine is, the better. If a mine has only 1 g/t gold but is a 5-10 million ounce mine, give it a look. For underground mines, the same larger is better rule applies but the ounces within the ground do not need to be as high. Look for underground mining companies with 2-3 million ounce mines.
Solid company management is also important, though increasingly hard to find, in junior and mid cap mining companies. Look for companies with management teams that came from major producers of gold. These folks often experienced huge success but were looking for new challenges.
The location of the mine can make a major difference when it comes to gold mining stocks. Currently, Canada is the best place to own a gold mine and the U.S. comes in second. Chile, Argentina, Peru, Ghana, Mali, Mexico, and Brazil are other favorable locations. Look for mining companies in these countries with a cash cost of between $300 and $450 per ounce.