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One of the most popular ways to invest in mining stocks is through the search of the best junior mining companies. Junior mining stocks are essentially shares of a relatively new mining company — or a “junior” mining company.

The reason investing in junior mining companies is so popular should be an obvious one: if the company explodes in size, so does your investment returns. The only question, then, is this: how do you pick the best junior mining stocks?

That’s where this guide comes in. Read this article to learn how to pick the right mining companies to invest in, how to tell when something risky is going on, and how to make the decision to jump in.

It’s All About Location

This is something many investors tend to ignore — and I haven’t the foggiest clue why. Where a company is located is extremely important to your decision to buy shares of a company. Remember: most of the world isn’t free. In many countries, the political, economic, and criminal backdrop of the country isn’t friendly to commerce or mining.

Even in the US — one of the freest countries in the world — the government is becoming increasingly hostile to business and commerce of all sorts. I never invest in companies that are based in communist or strongly socialist/fascist countries. China, Russia — these countries are out of my portfolio. I don’t trust them. It’s too risky.

It’s All About Management

Investing in a mining company is different than investing in whatever it is they’re mining — buying gold stocks is different from buying gold, for example. The reasoning is pretty simple: companies have to be managed — the metal itself just sits there.

All companies — junior mining companies included — rise or fall on the basis of how they’re managed. Before picking a junior mining stock to buy, consider the management team. Do your research: spend a few hours reading up on the CEO, find a way to talk to the actual engineers, etc.

If you’re investing thousands of dollars, it’s at least worth a little “real” time with the people who work at the company. Besides, this gives you more opportunities to find red flags.

And don’t forget about their marketing department — there’s more to turning a profit with a gold mining company than just getting metals out of the dirt. This is kind of an extension of the concept that it’s all about management: bad marketing kills companies, stocks, and investments.

If you want to invest in company that will turn a profit for you, then only put your money with company that knows how to market itself well — otherwise, your investment will disappear.

It’s All About the Market

Though it should go as a “gimme”, the market is one of the most important factors in picking a junior mining company. Pick the wrong resource, and you could lose money in the long haul, regardless of how well-run the company is.

For example, I’m bullish on natural gas over the next decade, so I’m buying up stocks in natural gas companies, like Chesapeake Energy. Though it’s not an emerging natural resources stock, it’s still an important company and is one of the best natural gas stocks you can find.

For the record, another reason I like Chesapeake (bought some shares today, actually) is because I know the company well. I have friends that work with them, family that leases land with them — and I know it’s well-run and professional. That goes a long way when picking stocks. Philosophers might say “know thyself”, but investors should say “know thy companies.”

This underlying principle is simple and obvious: if the resource is going to increase in demand, then start looking for good companies in that market. Especially good junior mining companies — they have the room for the most explosive growth.

Conclusion and Resources

Want to learn more about investing in mining stocks? Then keep reading our free mining stocks investing guide. It’s, well, free. You can also check out WealthDaily and GoldWorld for some more basic information about investing in junior mining companies.