Making it Rain!

This morning I was reading the digital news before I logged-in for the day and I learned that gold was formed by a neutron star collision, resulting in pressurized debris that rained down onto our Earth— fresh from the Universe. This is why people are so starstruck with gold! 

As an industry, mining is extremely capital intensive and relies heavily on investments from the public to make their projects come to fruition.  These projects cost millions upon millions to fund.  But as an investor, it’s difficult to know how to differentiate a good project from one that can leave investors broke and jaded.  

Skim the corporate presentation and they will generally break this out for you. Here’s what you need to know:

During my many conversations with mining professionals, they described having a “gut instinct” as to whether or not the people they chose to work with would be synergistic.  One individual described his team as “only as good as its weakest member.”  This is very true.   because good people like to invest with good people. This is why the management team is the most important part of the project.  If they can’t properly execute, it won’t get off the ground.  

Now that you know the basics, before drilling down to the core of the quality of the resource and capital structure, assess management first and proceed down the checklist.  Remember, to keep the gold standard. Good luck with your digging and don’t forget to rock on!

Some Dig it, We Drill it!

I’m frequently asked why I have such a youthful glow to my skin.  “What’s your secret?”: they always inquire.  To the horror of ‘helicopter’ parents everywhere, I explain that my Dad is a geotechnical engineer and he designed mining tailings sites.  Back in the day, he used to bring my sister and I to his site visits, regularly.  Before toxins and pollution were of major concern, we used to play in the giant tailings, sand dunes which were comprised of uneconomical waste rock.  Therefore, I guess you could say that I was “resourceful” with my skincare regime.  

The objective of a junior mining company is to convert Mineral Resources to Mineral Reserves. With every step, when new data and research is obtained, the resource is modified into the next stage of the process.  

Every time a mining company publishes news to the public regarding their Mineral Resources, Mineral Reserves and Mining Studies, they have to be up to the Standards of Disclosure for Mineral Projects, called the (National Instrument 43-101).  ¹ The National Instrument 43-101 is a Canadian set of rules and guidelines to ensure that mining companies report their results in a transparent way to the capital markets.  It ensures that proper scientific methods and that “Qualified People” (QP) assess the results.  These people are the overlords of the mining project and they are generally geologists and engineers with professional designations and are qualified with over 5 years’ experience.  This technical reporting is a big deal.  It verifies the validity of the resource to ensure that sneaky people don’t shave down their ex’s gold jewellery and melt it onto a core sample.  

Good news makes the stock price rise and so you should be on the lookout for the following events to occur within the mining pipeline: 

These figures were provided by the mining executives that I’ve met over the last couple of years and can be used as a reference point for evaluation.  All projects are unique, so there is likely to be some deviation from the benchmarks.   When necessary, further research into the project may be required.

References:

¹ www.cim.org,  The Canadian Institute of Mining, Metallurgy and Petroleum 

 CIM DEFINITION STANDARDS – For Mineral Resources and Mineral Reserves, 

Prepared by the CIM Standing Committee on Reserve Definitions, Adopted by CIM Council on May 10, 2014, 10/18/2017

² Muibat Omotola Fashola,¹ Veronica Mpode Ngole-Jeme,² and Olubukola Oluranti Babalola^1,*

Yu-Pin Lin, Academic Editor,  Heavy Metal Pollution from Gold Mines: Environmental Effects and Bacterial Strategies for Resistance, 13(11): 1047., Int J Environ Res Public Health. 2016 Nov; PMCID: PMC5129257; Published online 2016 Oct 26. doi:  10.3390/ijerph13111047; P.2,10/18/2017

I grew up in Sudbury, Ontario in the 1980’s, where mining was ingrained into our childhoods…  

Every morning before school—while eating breakfast— the local radio station would host a contest giveaway.  All you had to do was call in and provide a safety tip on-air.  If you were the lucky caller, the station would then send you an “Inco branded industrial grade backpack” (*Inco has since been taken over by Vale.)  The best part was that the backpack contained pretty packaged samples of copper flakes, nickel and pyrite—fool’s gold.  As I recall, the pyrite was shiny and very popular with the kids, myself included.

Since that moment, I’ve never lost my affinity for shiny things.  Over the years, I’ve met with hundreds of talented women and men in the mining industry who have executed on these projects. After listening to many presentations, here are some basic factors to consider when you’re evaluating a mining project to invest in. 

Identify your Mining Company

If you want to do a quick assessment, “google” the company’s name and go to their corporate website.  Most of this information will be located in the corporate presentation in a PDF document, where they highlight all of the best features of the project.  You can also go to www.sedar.com and you can look up further documents if you feel so inclined.  Canada is big on natural resources and hosts a medley of junior companies that go through a thorough and regulated listing process. You can find these companies on the Toronto Stock Exchange (TSX-V), the Toronto Venture Exchange (X) or on the Canadian Securities Exchange (CNX.)

Can you Dig it? 

There are 3 major categories of mining stocks: explorers, developers and producers.   True gold-diggers want big rewards for all of their trouble, and so, the focus will be junior explorers.  Junior explorers hope that they find a large deposit so that the developers and producers can take them over in a buyout. Geologists and investors get very giddy over undiscovered parcels of land with loads of unexplored potential because it’s like a treasure hunt for them and the payoff can be huge.  Most financial analysts do not cover the explorers, so it’s difficult to find research on them.  Junior exploration projects are hit or miss.  You can either win big or you can lose everything. 

Look at the Management Section: Super Important!

The first thing to do is to check out the management tab.  Under this tab, the Bios of the team are listed.  The team usually boasts about their previous achievements in this section.  The idea is that if they have a track record for success, they are likely to pull a good team together to replicate the process again.  

Mining is an expensive business, so look for a combination of competent business people, geologists, engineers and lawyers.  The CEO has to be a good marketer so that people are aware of the story.  Look for issued press releases and for those regarding trade shows and media appearances, as well as recorded interviews to assess their interactions.

Since it’s hard to meet these people in person, watching them on television or on some online podcasts can give you an indication as to whether or not they demonstrate passion for their company and if they are decent people. Notice how the executive responds to the interviewer’s questions.  If the executive is respectful, confident and knowledgeable, this is a good sign. If however, the executive is arrogant and condescending, you may want to shy away.  The mining circle is small and friendly.  If the leader of the Company displays toxic personality traits, they are likely to cause board and management disagreements. 

Location, Location, Location!

When it comes to an ideal mining location, the country should be politically stable and situated in a place with a positive mining track record, in the right geological environment.  I always like to hear how the team was drawn to the property. People like to hoard real estate—especially land.  Since the places I look for are known gold destinations, I like the stories where the land has been in the family of non-miners for a number of years until their heirs lost interest and decided to sell it.  

Just like when you buy a piece of real estate, it’s vital that your deposit is located on a good piece of property and you need to know the key development risks.  To eventually tap into the full potential of the resource, you need proper infrastructure, such as roads, water and electricity, as well as workers.  The more remote the property, the more expensive it is to get the resource out of the ground and into the proper outlets to sell the commodity.  For example, if you had to build electric power lines, it could cost at least $1.5 Million per KM.  Fortunately, you can go onto Google Earth and you can locate your project to see what’s around it in terms of infrastructure.  

Now that you’ve identified a company, have looked into management and found a good location, you can begin to mine your own business!