Introduction

Hi everyone and welcome to the Mining 101 Blog.

The way we will set up this blog is as an information hub for new and potential investors new to the mining world. Please feel free to leave comments or e-mail us for inquiries.

A short disclaimer about our group - we are a group of investors and not professional analysts or mining experts. However we have experience in the mining companies and their operations - hopefully this unique perspective should offer much insight for newer investors looking to grasp some basic concepts.

Many of our first posts will be in a brief Question and Answer format with a short comment about technical abbreviations and links to reference materials.

Our approach is a simple and common sense approach instead of sea of jargon that most layperson will see when you Google "Mining". With that said, let's get started.

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What is mining?

Simply put, it's the various methods and activities involved in extracting minerals and precious metals from the earth. More on the steps and processes later, but here's an overview about the mining industry and the different type of companies.

Exploration vs Production stage?

Like their definition suggests, exploration companies explore the property they have through geological studies, surveys, and drilling holes in the ground (not too surprising, right?). All this is for a hope that the land is filled with precious metals that's worth more than the land purchase price!

COST : Lower - employing geologists to fly to a remote piece of land to drill holes and do surveys
RISK : Higher - since there the possibility there could be low grade metals or not economical enough to turn into production
RETURN for investors : HIGHEST - putting your money down for shares of an exploration company where the initial survey results look good is a risky investment, but with that comes a huge return potential. If the drilling results look good - your investment can easily jump as the speculation (no concrete samples) is now turning into a solid estimate.

Production is more complicated. Typically companies with production properties will have purchased or brought a property from exploration to production stage. This means building a mine or production facility and bringing workers to process the mined rocks to get the metal portions out (more on extraction methods later).

COST : HIGH - Alot more expensive - infrastructure and building a mine and facility to refine metals once the raw rocks are dug from the ground
RISK : MEDIUM - still potential of risk from variables like operation (flow and management), worker availability, infrastructure, economic production schedule (it costs money to maintain the camp each day!)
RETURN : LOWER - once the metal is refined still dependent on the grade and commodity prices. (Gold's at $900+/ounce today ref - Kitco)

With that said, what do many junior mining exploration companies do?

The cost of mining is quite high. If you take a look at the income statements and production budget for many major mining firms such as Barrick it can easily reach into the hundreds of millions. (in Barricks' 2008 case - $400 Millions!). In contrast, their exploration budget tallies to $200 Million for the 2008.

Jr. Mining companies tend to acquire property with cash, option agreements, or joint venture projects in an attempt to eventually do a survey/drill study to see the potential of deposits of metal in the ground. Given the lower cost, you will see $3-5 Million a year for exploration efforts for Juniors compared to the Barricks, Yamanas, and Kinross of the mining world.