All posts by Pat McKeough

10 Secrets of investing in Junior Mining Stocks

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Junior mining stocks are highly speculative, but here are 10 secrets that will help you find the best of them

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In mining exploration, an “anomaly” is a geological formation or find that might attract a prospector’s interest. However, one rule of thumb for mining stocks is that you have to look at 1,000 “anomalies” to find one “prospect,” and that fewer than one “prospect” in a thousand turns into a mine. In other words, finding a mine is a million-to-one shot.

What are the challenges facing junior mining stocks in Canada?

Junior mining companies in Canada face significant challenges of securing adequate financing for exploration and development, navigating complex environmental regulations and permitting processes, managing high operational costs in remote locations, and dealing with commodity price volatility.

What is the government doing to support the junior mining stocks in Canada?

The Canadian government supports junior mining through flow-through shares tax incentives, the Mineral Exploration Tax Credit (METC), favorable exploration policies in territories like Yukon and Northwest Territories, and programs supporting critical minerals exploration.

That’s one reason why junior mining stocks — unlike many of the best mining stocks — are highly speculative, and are apt to cost you money. Another reason why junior mines are risky is that it’s relatively cheap and easy to launch a penny mine and sell stock to the public. So the junior mines promotion business attracts more than its share of unscrupulous operators and stock promoters. That’s increasingly the case in 2023 when unmined, easily reached deposit sites are harder to come by. It’s also why finding the best mining stocks takes some research.

How do I diversify my portfolio with junior mining stocks?

To diversify with junior mining stocks, limit them to a small percentage (typically 5-10%) of your total portfolio and spread investments across different commodities, development stages, and geographic regions to manage the high risk inherent in this sector.

However, junior mining stocks can play a role in a portion of your portfolio, specifically the part you devote to aggressive resource investments.

Here are 10 things we look for when we analyze junior mining stocks in a search for the best mining stocks to buy:

  1. We generally stay away from mining stocks operating in insecure and politically unstable regions like the Congo and Venezuela, or in countries with little respect for property rights and the rule of law, like Russia or Mongolia. Mining is inherently a politically vulnerable business; you can’t move the mine to another country, and local citizens sometimes believe that a foreign mining company is robbing them of their birthright, even though they need the foreign company’s capital and expertise to get any value out of the ground.
  2. When we recommend pure-exploration junior mines, we prefer those that operate in an area with geology that is similar to that of nearby producing mines.
  3. We look for well-financed junior mines with no immediate need to sell shares at low prices, since that would dilute existing investors’ interests. The best junior mines have a major partner who has agreed to pay for the drilling or other exploration or development, in exchange for an interest in the property.
  4. We find that the best mining stocks are those with a strong balance sheet and low debt.
  5. When we recommend mining stocks, we want to see positive cash flow, preferably even when commodity prices are low. Continue Reading…

Resist the Urge to Make a Quick Profit on your Best Stock Picks

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Investors often go for the easy gains, but resist the urge to dump your best stock picks for a quick profit

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Here’s a quote from one of the first highly successful investors I ever had the privilege of meeting. While talking about the stock market, he casually mentioned, “I’m a rich man today because I was smart enough to buy Canadian Tire stock at $0.50, and too stupid to sell when it hit $2.00.”

The quote deserves to be repeated more often, since it simplifies a key rule for successful investing and preserving your best stock picks: Don’t be too quick to sell a winner. Unfortunately, this rule gets broken all the time. Many investors buy a particular stock, often a junior stock, because they like a number of things about it: the business plan, the experience and achievements of the management, the outlook for the industry the company is targeting, the general economic environment, and so on. Before too long, however, other investors are likely to discover the same stock.

They may like it so much that they bid up its share price. When that happens, it can spur the early buyers to take profits.

These early buyers may lose interest because they fear the stock has burned up its near-term potential. Worse still, they may fear the rise is a “last gasp” and that the stock may suddenly go into a deep setback. Or, they may decide they found one good stock before the rest of the market did, so they can sell their latest winner and go on to invest the proceeds in something better.

Their initial good fortune may give them the urge to sell their first winner, in hopes of finding something else just as good, but with more profit potential because it has not yet caught the market’s attention.

Before you yield to this urge, it’s better to consider what else has changed about the stock, other than its rise in price. Did its business plan change? Probably not. Chances are that few if any of its attractive industry aspects have changed. Good management, good industry opportunities, a positive economic outlook and so on can persist through long periods of adversity.

That’s why you need to overcome the intermittent but all-too-human urge to take a quick profit on your best stock picks.

Mind you, before selling the stock and buying something else, you need to contemplate a related rule: Resist the urge to declare a junior investment a winner, just because of its novelty, or its uniqueness, or its frequent appearance in the broker/media limelight.

Lots of good-sounding investment ideas turn out to be poor investment performers.

Think long-term when it comes to maximizing gains on your best stock picks

The goal of an investor, particularly if you follow the Successful Investor approach, is to make an attractive return on your investments over a period of years or decades. Failure means making bad investments that leave you with meagre profits or losses.

Unsuccessful investors can still make some profits. They just don’t make enough to offset the inevitable losses and leave themselves with an attractive return. If you focus on the idea that you never go broke taking a profit, you may be tempted to sell your best investments whenever it seems the investment outlook is clouding over.

On occasion, you may succeed in selling just prior to a major downturn, and buying back at much lower prices. More often, prices will soon hit bottom and move up to new highs. If you buy back, you’ll pay higher prices. If you had followed this investment belief with Canadian bank stocks, for example, you could have missed out on some big gains over the years.

In hindsight, market downturns are easy to spot. Spotting them ahead of time is much harder, and impossible to do consistently. After all, if you could consistently spot market downturns ahead of time, you could acquire a large proportion of all the money in the world, and nobody ever does that.

The problem is that you’ll foresee a lot of market downturns that never occur. All too often, the market-downturn clouds disperse soon after skittish investors have sold. Good reasons to sell do crop up from time to time, of course, even if you follow a long-term conservative investing approach. But “You’ll never go broke taking a profit” is not one of them.

So, when is it the right time to sell your best stock picks?

Investors often ask, “When do I sell?” There is no simple, fits-on-a-t-shirt answer to the question. But there are some helpful guidelines. Continue Reading…

5 Steps to a Successful Retirement Investment Plan

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Build a retirement investment plan more successfully when you focus on tried and true ways of saving, like using an RRSP and a RRIF, among other strategies

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Instead of taking on extra risk, take the safer route to retirement planning. Save more now, work longer, or plan to spend less. Retirement leaves you with lots of free time, and filling it costs money.

But postponing retirement, or working part-time as long as you’re able, can pay off in higher current income, more contentment and greater long-term security.

Here are five retirement investment plan tips to help you prepare for a successful future.

 

1.) Turn frugality into a game as part of your retirement investment plan

Retirement income planning doesn’t have to be about moving money around. Sometimes it’s easier to live frugally. People who come from humble circumstances often develop a degree of both frugality and industriousness early in life.

It’s easy to let frugality evaporate in mid-life, when money becomes more plentiful. But some find that if they return to frugality later in life, it’s more fun than ever. It’s a little like taking pleasure from a game that you haven’t played since you were young.

Your enjoyment of, or distaste for, frugality is partly a matter of attitude. But that’s under your control. Don’t think of it as penny-pinching. Think of it as taking charge of a part of your life, so that more of your money goes to things you choose.

2.) Invest in a Registered Retirement Savings Plan (RRSP) as part of your retirement investment plan

RRSPs are a great way for investors to cut their tax bills and make more money from their retirement investing. RRSPs are a form of tax-deferred savings plan. RRSP contributions are tax deductible, and the investments grow tax-free. (Note that you can currently contribute up to 18% of your earned income from the previous year. March 1, 2025 is the deadline to contribute to an RRSP for the 2024 tax year.)

When you later begin withdrawing the funds from your RRSP, they are taxed as ordinary income.

If you want to pay less tax on dividends while you’re still working, investing in an RRSP is the way to go.

3.) Convert your RRSP to a RRIF at age 71 to get the maximum benefit

Convert your RRSP to a RRIF at age 71 to make sure that you get the maximum. RRIFs offer more flexibility and tax savings than annuities or a lump-sum withdrawal. And like an RRSP, a RRIF can hold a range of investments.

If you have one or more RRSPs (registered retirement savings plans), you’ll have to wind them up at the end of the year in which you turn 71. When you do, you’ll have three main retirement investing options: Continue Reading…

U.S.-listed ADRs: A Smart way for Canadian Investors to buy Foreign Stocks

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ADRs (American Depository Receipts) are a great way for Canadian investors to invest in foreign stocks

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Our view on foreign investing is that for most investors, U.S. stocks can provide all the foreign exposure they need.

We also feel that virtually all Canadian investors should have 20% to 30% of their portfolios in the U.S. stocks that we recommend in our Wall Street Stock Forecaster newsletter.

What is an ADR?

An ADR (American Depositary Receipt) is a negotiable certificate issued by a U.S. bank that represents shares of a foreign company, allowing American investors to buy and trade foreign stocks on U.S. exchanges in U.S. dollars without dealing with foreign currencies or international brokerages: essentially making it easier for Americans to invest in companies like Nestlé, Toyota, or Diageo plc through their regular  brokerage accounts.

How do ADRs differ from regular U.S. stocks?

ADRs differ from regular U.S. stocks in several key ways: they represent foreign companies traded in U.S. dollars on U.S. exchanges but carry additional fees (administrative costs, currency conversion expenses), often lack voting rights, may have lower liquidity and wider bid-ask spreads, face foreign exchange rate risk, and have different regulatory reporting requirements depending on their level (I, II, or III), while regular U.S. stocks offer direct ownership with full voting rights, higher transparency, and typically lower costs.

What’s the difference between sponsored and unsponsored ADRs?

Sponsored ADRs are created with the cooperation and agreement of the foreign company, which works directly with a U.S. depositary bank that handles recordkeeping, paperwork, and dividend payments, while unsponsored ADRs are issued by broker-dealers without the foreign company’s involvement, participation, or even consent, and may not meet full SEC requirements: sponsored ADRs generally offer better investor protections and more reliable information than unsponsored ones.

Why should a Canadian investor consider ADRs?

A Canadian investor should consider ADRs to gain easy access to foreign companies, particularly from Europe, Asia, and emerging markets. That allows for greater portfolio diversification beyond North American markets while trading in familiar US-dollar-denominated securities on major U.S. exchanges like the NYSE and Nasdaq: all the while eliminating the complexity of dealing with multiple foreign currencies and international brokerage accounts.

If you want to add more foreign content, you could buy individual stocks. But for most investors, directly investing in foreign stocks can add an extra layer of risk and expense. As well, timely and accurate information about overseas companies is not always available, and securities regulations vary widely between countries. It can also be hard for your broker to buy shares on foreign markets without paying a premium. Tax rules and restrictions on transferring funds between nations add further uncertainty and cost.

Understanding the ins and outs of ADRs

All in all, we think the best way to invest in foreign stocks is to buy high-quality firms that trade on the New York Stock Exchange as American Depositary Receipts (ADRs). An American Depositary Receipt is a U.S. traded proxy for a foreign stock and represents a specified number of shares in that foreign corporation.

ADRs are bought and sold on U.S. stock markets, just like regular stocks, and are issued or sponsored in the U.S. by a bank or brokerage firm. If you own an ADR, you have the right to obtain the foreign stock it represents. However, investors usually find it more convenient to continue to hold the ADR and to sell the ADR when it no longer serves their needs.

One ADR certificate may represent one or more shares of the foreign stock. Or, if the stock is expensive, the ADR may represent a fraction of a share; that way the ADR will start out trading at a moderate price or be in the range of similar securities trading on the U.S. exchange. Continue Reading…

Mining Stocks that pay Dividends

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Add to your long-term returns in the resource sector by investing in mining stocks that pay dividends

At TSI Network, we keep a sharp eye out for high-quality mining stocks that pay dividends.

Dividends are typically cash payouts that serve as a way companies share the wealth they’ve accumulated through operating the company. These payouts are drawn from earnings and cash flow and paid to the shareholders of the company. Typically, these dividends are paid quarterly, although they may be paid annually or even monthly.

Dividends can now contribute up to a third of your long-term investment returns, without even considering the tax-cutting effects of the dividend tax credit. In addition, dividends are far more reliable than capital gains. A stock that pays a $1 dividend this year will probably do the same next year. It may even increase its dividend payment.

Many investors buy gold stocks as a hedge against inflation, and some gold stocks pay dividends. But there are other mining stocks that also offer an inflation hedge: and on average pay higher dividends.

Copper stocks generally have higher dividend yields than gold stocks because they have steadier demand and more stable prices. As well, they’re usually much cheaper than gold stocks in relation to their earnings and cash flow. That means they potentially have less room to fall if markets in general fall. That’s also another way of saying that they can be less risky than gold.

Long term, copper should gain from rising demand and tighter supply. Major deposits are depleting, and environmental issues are holding back new mines.

Nutrien (symbol NTR on Toronto) is one of our favourite Canadian dividend-paying mining stocks. The company is the world’s largest producer of agricultural fertilizers, including mined potash. It took its current form on January 1, 2018, when Agrium Inc. (old symbol AGU) merged with rival Potash Corp. of Saskatchewan (old symbol POT). The stock is well-suited to income-seeking investors. The company has increased its dividend by an average of 5.8% annually in the past five years. That dividend yields 3.4%.

 

What’s a mining stock?

Mining stocks are investments in companies that produce or explore for minerals, such as uranium, coal, molybdenum (which is used in steelmaking), copper, silver and gold.

Mining stocks can generally be broken up into two categories, majors and juniors. Majors are mining companies that have been in the mining business for many years and more often than not they operate on a global scale. Majors have proven methods for exploration and mining, and have consistent output year over year.

Junior mining stocks are mining companies that are new or have been in business for a decade or less. They are usually smaller companies and take on risky mining exploration. If a junior mining stock is successful at finding and mining, it can mean huge returns for investors.

 

4 ways you benefit when you invest in mining stocks that pay dividends

  1. Growth and income. The best dividend-paying stocks offer both capital-gain growth potential and regular income from dividend payments. In fact, dividends are likely to still be paid regardless of how quickly the price of the underlying stock rises.
  2. Dividends can grow. Stock prices rise and fall, so capital losses often follow capital gains, at least temporarily. Interest on a bond or GIC holds steady, at best. But top dividend paying stocks like to ratchet their dividends upward—hold them steady in a bad year, raise them in a good one. That also gives you a hedge against inflation. Continue Reading…