Basic Mining Stock Analysis Guide for Beginners

I put together a general stock analysis guide for beginners not long ago and got good feedback on it. People found it useful, so I thought I’d follow it up with one that’s more specific. This time the focus is on mining stocks, especially juniors that haven’t generated revenue yet. Looking at these companies is different from analyzing a normal business with steady sales, so the way I judge them changes.

There have already been a number of strong runners in the junior mining sector, and I think there’s going to be even more opportunity over the next few years. That said, the space is also full of junk. The goal here is to give a simple framework for spotting red flags and filtering out the worst names using Sedar filings (or EDGAR in the US).

You don’t need to be an expert to do this. You just need to know where to look.

Start with the cash

Most juniors don’t generate any revenue. They’re pre-revenue exploration companies, which means they rely entirely on raising capital to stay alive. Cash is their lifeblood. If they don’t have enough, they’re dead in the water until the next financing.

Open the latest interim financials and check Cash and Cash Equivalents. That’s the raw cash. Then look at Working Capital, which is cash minus short-term liabilities. This number gives you a better sense of what they actually have available.

Then figure out how fast they’re burning through it

Go to the income statement and look at two key items: G&A (general and administrative costs), which cover salaries, rent, travel, etc., and exploration expenses, which is the actual money going into the project.

Add those together to get the quarterly burn rate. Divide by three to estimate the monthly spend.

Example: If a company spent $600K last quarter and only has $300K left, that’s about six weeks of runway. In other words, a financing is likely coming soon. If you’re buying in now, you could be stepping in right before dilution.

Check who’s getting paid

Open the MD&A or the notes in the financials and look for Related Party Transactions.

This section will tell you if insiders are paying themselves large salaries or if the company is funneling money to other businesses tied to management. You’ll also see things like consulting fees paid to directors or “strategic advisors.”

This matters because some juniors burn through a lot of cash without doing any real work. If most of the money is going to people instead of the ground, that’s a red flag.

Look at the share structure

Check how many shares are currently outstanding. Then add in all the warrants and stock options to see the fully diluted share count.

If a company has 50 million shares out but 150 million fully diluted, that’s a massive overhang. Even if the stock moves up a bit, heavy selling pressure from those warrants can cap the upside.

Also pay attention to the pricing. If there are a pile of $0.05 warrants and the stock is trading at $0.10, expect people to exercise and sell.

Dig into their past financings

This one is easy to overlook but really important. Go through Sedar filings or old news releases and check when the company last raised money.

Look at the financing price, whether it came with a full warrant, and when that paper becomes free trading. Most financings in Canada have a four-month hold.

Once that hold comes off, selling pressure is common. Early investors who got in cheap often lock in gains and take liquidity off the table. If you’re buying right before that happens, you might just end up being their exit.

Flow-through money

This mostly applies to Canadian juniors. Companies can raise what’s called flow-through capital, which lets investors claim tax deductions in exchange for the funds being spent on eligible exploration in Canada.

The catch is that flow-through cash can only be used for exploration. It can’t go toward salaries or admin, and it usually has to be spent within 12 to 24 months depending on the deal.

If the money isn’t spent in time, the company breaks the tax agreement with investors. The cash doesn’t disappear, but it can trigger penalties or force the company to raise even more flow-through just to cover the shortfall. Either way, it often leads to dilution.

If you see a company sitting on a big pile of flow-through but not doing real exploration work, that’s a red flag worth noting.

Read the MD&A

The MD&A (Management Discussion and Analysis) is probably the most overlooked part of a filing, but it’s also one of the most useful. It’s where management explains what’s happening in plain language, and it often gives away more than the numbers alone.

This is where you can spot clues about whether the company is falling behind on timelines, struggling to raise capital, or quietly shifting strategy.

Some things to look for:

“Going concern” warnings

Missed or delayed drill programs

Subtle changes in exploration plans

Mentions of challenges raising money

It’s also worth comparing what they said they’d do with what they actually did. If they raised $2M “for drilling” and most of it ended up going to salaries, rent, and consultants, that’s not a great sign.

Final Thoughts

This isn’t meant to be a deep dive or a technical breakdown. It’s just a quick scrub you can do in 15 to 20 minutes to avoid walking into obvious traps. Most junk companies give themselves away if you actually read their filings.

If you stick with it and stay serious about investing in penny stocks, especially junior miners, this process becomes second nature.