by Aaron Hoddinott

Managing Director

PinnacleDigest.com

So you found a junior mining stock you think is undervalued. Now answer this: Why do you think it's undervalued?

Most investors will cite its high grade drill results, strength of its management team, the size of its deposit, location of its deposit, producers surrounding its deposit, strength of its partners and so forth. All these are very good points to consider when trying to discover the merit of an investment, but in reality, they won't give you an accurate assessment of its fair value. Nothing gives you a more accurate assessment of what a fair value is for a junior mining company than by finding comparables ("comps").

You may think you have found the most undervalued junior miner to ever list on the stock market, but if you can't find nearly identical comps, trading at higher valuations, there's always a reason for its cheap share price.

If you think you have found a cheap junior miner the first thing you should do, after finding all possible information you can about its management and assets, is search for as close to an identical company as you can find (comparable) and see what the market values it to be worth. Simple enough, but rarely executed on.

Just to be clear on what a comparable is, I've made a list for your reference.

• Must operate in the same country (preferably same state or province as mining laws change throughout).

• Must have similar (doesn't have to be exact) strengths in its management.

• Must be exploring for the same commodity (I know, it's obvious).

• Must have similar grade drill results (includes depth) and/or resource calculations.

• Must have close to the same amount of cash in the bank.

• Must have similar capital structures (doesn't have to be exact). This is very important. You need to know who owns the stock in the company and at what prices.

• Must have similar insider trading records (great resource for Canadian stocks is Canadianinsider.com).

These are some examples I use when determining what a comparable may be for my prospective investments in the junior mining sector.

Sure, it's a time consuming task, but it is a vital one to successful investing. When you find accurate comps it is very easy to determine what your prospect is currently worth - or what it should be worth.

Far too often I hear about junior mining investments that have (much to the amazement of the investor) gone underwater on people who have no idea why. Ask them about the deposit and they can tell you every little detail about it. Ask them about the management and they have nothing but great things to say. Ask them about the performance of comps lately and a blank expression comes across their face.

Think about it. When you're in the market to buy a home you look for the best value your money can get. You view all homes within your price range within a certain neighborhood or area in order to determine which house will give you the best bang for your buck. Investing in junior mining stocks is no different. You have to review and study the overall market before you can understand what fair value truly is and where the deals are.

As a helpful hint, from my own personal experience:

9 times out of 10, the great deals in the junior mining sector are found in the stocks that have a poor public presence. No public awareness equals low market capitalization.