The Absolute Best Way to Buy Small Mining Stocks
By Matt Badiali
June 1, 2007

The news seeped out, one rumor at a time.

Big discoveries are like that. The news is too juicy to keep to yourself. Virginia Gold Mine's share price crept slowly upward.

Formal press releases told the whole story – Virginia's Eleonore find, located in Quebec, was a huge discovery. Virginia's shares picked up speed.

By early 2006, it became clear that mining giant Goldcorp would buy the Eleonore project for a huge premium. Shareholders who bought into Virginia Gold less than two years earlier at $1 per share now held stock worth $15 per share... a 1,400% return.

After Virginia sold Eleonore, the company spun off all of its other projects into the "new" Virginia and went right back to prospecting.

Virginia belongs to a small group of mining stocks called prospect generators – firms that do grassroots mineral exploration and sell their discoveries to large mining companies. No huge open-pit mines for these guys... they just do the homework and fieldwork required to find large ore bodies.

I believe this business model is the best way for investors to make huge gains in the mining sector. Here's why:

The mining industry is voracious for metal deposits, and the most talented exploration geologists own and work for prospect generators. I see the emergence of an entirely new class of mining company, and this is your opportunity to get in on the ground floor.

There are only about 20 prospect generators (PGs) in the world, as opposed to the thousands of conventional mining companies. The PG's niche is exploration, at the expense of the majors.

These small companies collect the best exploration geologists in the industry, at a time when the world's mining companies are screaming for new projects. Larger mining companies pay prospect generators a couple million dollars for the privilege of developing their projects. The PG also keeps a portion of the project (anywhere from 20% to 50%) and doesn't have to spend another cent.

A typical junior mining company needs to raise money (and dilute your shares) to fund a new drilling project. On the other hand, prospect generators use other people's money and protect your value.

The seductive lure of these companies is the possibility that they will make a huge discovery. At our recent True Wealth Gold & Collectibles Conference, names like Altius Minerals, Aurelian Resources, and Arequipa Resources got reverential treatment. Like Virginia Gold Mine, these companies made discoveries that took them from penny stocks to tens of dollars within months.

Perhaps my favorite discovery story in the group is Aurelian Resources. Aurelian's Fruta del Norte discovery in Ecuador took its share price from 30 cents to $30 in nine months... a spectacular gain of nearly 10,000%.

The key to the PG business model is making discoveries and sticking with the smartest geologists. They key to investing in PGs is to buy a handful now to spread your risk.

Right now these companies are small (between $20 million to $40 million market cap), but they won't stay that way for long.

Good investing,

Matt Badiali