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Mining Companies: Why Smaller Is Better

For newer readers still unfamiliar with this serial conspiracy, the basic premise is relatively simple. As the world's best "money" for nearly 5,000 years, gold and silver prices are our canaries in the coal mine. When the bankers relentlessly dilute their paper currencies with excessive money-printing, the prices for gold and silver (expressed in that depreciating paper) should soar.

By suppressing those prices, it helps to hide this inflation from the Sheep, by allowing our governments to lie about that inflation without any obvious "smoking gun" to expose those lies. We see absurdities such as in July: where the U.S. government reported (literally) 0% inflation in the U.S., with its supposedly broader measurement of inflation.

Meanwhile, the World Bank reported that global food prices were rising at an annualized rate of approximately 120% and Asian governments were meeting to discuss the "global food-price crisis."

Because of the serial suppression of gold and silver prices, this makes economical gold and silver deposits less common in general -- and the large (high-grade) projects which the large-cap precious metals miners covet are even more rare. As a result, these large-cap "gold" miners (in particular) are morphing into polymetallic mining companies (generally copper/gold), as the only projects that have enough total ounces to meet their lust for size now often contain more base metals (by value) than gold.

The mutation of these senior gold-producers leads to even further erosion of the return to shareholders. "Pure" gold-producers (i.e. single-commodity producers) tend to be valued at higher multiples in our markets than polymetallic producers. Thus, the obsession with size ultimately dampens investor returns even further.

It's no wonder that most of these senior gold producers have been reporting flat, or even declining gold production, while smaller gold miners consistently ramp-up production year after year. It leads to a very simple equation for precious metals miners: smaller is better.

Where do investors find these smaller miners with their superior growth profiles? Canada's markets (the TSX and "Venture" exchange) are the global capital for junior and mid-tier mining companies. For U.S. investors with no access to Canadian exchanges, most of these companies have either "pink sheets" listings, or are even listed on larger U.S. exchanges (most often the Amex).

Having recently been driven down driven down to multi-year lows in their valuations, these mining companies are currently priced at absurdly cheap levels. However, because of the greater volatility inherent with smaller companies, it's essential that investors in junior miners hold a "basket" of such companies to provide a safe level of diversification.

Research these smaller miners carefully (since they're not all "winners"), spread out your investor dollars and wait. With prudence and patience, even most small investors should be able to prosper through investing in these smaller miners.

At the time of publication, the author held a position in HGD.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
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