Clearly there is a difference between a Junior Mining Company, a Mid-Tier Mining Company, and a Major Mining Company. You will often read that the Junior Mining Company is a more risky investment than the Major Mining Company, but that the rewards are potentially much greater. Some would like to believe that a Major Mining Company is blue-chip investing, i.e., sound, secures, and continued dividends. Both these statement are partially true. But, how do you distinguish a Junior Mining Company from a Mid-Tier Mining Company, from a Major Mining Company?

You could say that a Junior Mining Company is one that is engaged in exploration, development, and hopefully production. You could say the Junior is smaller. You could say the Junior is more risky, but potentially more rewarding/profitable. But that is also true of the Mid-Tier and Major. So I propose another definition with numerical and quantifiable clout. Simply look at the average salary of the Chairman ofthe mining company.

CostMine reports in the U.S. Metal & Industrial Mineral Mine Salaries, Wages & Benefits 2008 survey on the average salaries of mining company executives and breaks down the data by size of company. Here are the numbers:

  1. Major Mining Company Chairman Average 2008 Salary = $1,395,061
  2. Mid-Tier Mining Company Chairman Average 2008 Salary = $692,617
  3. Junior Mining Company Chairman Average 2008 Salary = $228,000

Let us try this new criterion on the salary of the guy who does the work, namely the Chief Operating Officer. In a Major the COO gets $830,252, in the Mid the COO gets $460,333, and in the Junior the COO gets $247,821. Interesting though how the ratio of salaries changes, with the Major’s ratio being 1.6, the Mid’s being 1.5, and the Junior’s being 0.9.

The rule is then that you should take a look at the remuneration of mining company executives. This information is generally available in the company annual reports. Some would advise you that if the company is paying executive too much, the company is probably not a good investment. The idea is particularly applicable to Juniors, where the mining company may be merely a vehicle for the top fellow to enrich themselves at the expense of the shareholder.

Conversely a well paid executive in a Major Mining Company may indicate that the fellow is worth it and that the company, being well-run, is a good investment. I would recommend comparing the executives’ salaries to industry averages and being very careful if the actual salaries differ significantly from industry norms. There is probably a reason for the difference, and even if you cannot establish the reason it is a good idea to be extra cautious in the face of something different and unexplained.