In this grim market, the bright side of things is there are deals on quality juniors everywhere.
Last time we used Mr. Jay Taylor's approach to due dilligence, this time let's review another successful (some would say more widely-followed) analyst/writer - Mr. Doug Casey.
He has a simple system called the 8P's of Picking an Investment in Mining Firms, let's review them briefly as it's a very reasonable and great structure for new investors to do their homework on the companies they're putting hardearned dollars in. In next week's post I'll describe companies using this method as an example.
1. People
No matter what anyone else tells you - the people in the company can make the biggest difference in the world. Past experience, credentials, success history, not to mention their network can allow better private placements, less dilution, focused exploration efforts and delays, and also well publicized company. (see: US Gold's McEwan who was ex-CEO of Gold Corp up to 2004 and TNR's Schellenberg who was involved in big buyout with DeBeers Diamond with Winspear Diamonds at over $300 million and is well known around mining circles). Tip - call up your favorite analyst at your brokerage firm and ask for the CEO's reputation and successes... I'm positive Canaccord Capital would recognize both of those names above!
2. Property
Obviously the land has to be decent - was there historic resource calculations? Was there past drilling results (mineralization doesn't exactly walk away once it's there! That fast anyways)... was there past producing mines? (yesterday year's technology versus today's - chances are there might be more resources deeper that they missed!)
As charming and polished as the execs might be, no analyst will visit a piece of property and come back raving about glow-in-the-dark rocks. You need some solid and convincing drill core samples and/or assay results, resource estimates, and even feasibility reports in some advanced company's cases.
This point also ties into Politics but we'll get there.
3. Politics
How is the local treating the companies down there? Chances are your laborers are around the area... do you have a contracting company backing you up that has extensive mining experience and well respected? Is laborer and skilled technicians/geologists readily available?
How is the attitude to mining over there, does the government ban certain type of mining due to environmental issues? All key issues to think about during any stage of mining whether it's exploration or production! Higher cost / taxes = lower profit. Simple!
4. Promotion
As much as you would like to believe it's a rational market, is there a consistent marketing and focused investor relations message from the company? Of course it's a chicken-and-egg theory, but technically good results should already attract attention, coupled with ongoing communication and marketing efforts - the increased visiblity should reflect nicely in share prices. (at least in bull markets anyways - not sure about this year!!!)
5. Push
Also known as newsflow. Keep in mind most of your retail investors and analysts are not drill technicians with frontline information. Most commonly they only get updated and excited a company when new results come out! With that said news release timing is also very important... many companies don't control their newsflow when the market starts waking up... they rely on their JV partners to release news and this momentum can be all lost without the right news!!
6. Price
What's the share price now and what's the market cap?
Depending on number of properties, certain milestones have to be reached by 200 million shares fully diluted, for example most companies would be producing at some small level by then usually. That also means the company may have been around for awhile - and sometimes even if the other P's are good, investors may just get tired of the same company logo and such!
Dilution is another thing, in a difficult market dilution occurs faster because share prices are lower - companies have to issue more just for the same amount of money!! Thus the original shares are now worth less because there's more people to share the pie with you when and if properties strike gold/copper!
7 & 8 Paper and Phinancing
Share structure is another story - what's the warrants at? Options? Any hostile parties holding your options or warrants that will send the price crashing down when they sell? Here once agani it's nice to have longterm convicted shareholders in the company looking for the big payoff, not the small jumps of 5-10% here and there!
Another is trading volume, a thinly traded stock may mean many things including large longterm institutional holding - which is great! But it may also signal liquidity issues for new retail investors.
What's the ask-bid like usually? Take a look! It's important to have this data on Stockwatch or Real Time Platform... after all how do you know you can sell at $0.20 if there's only 1,000 bid at $0.20 (meaning it's $200) and you invested $500? The other $300 in this case will go down the list or be added to offer side as a block!
Questions / Comments ALWAYS welcome.
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2 comments:
Boy oh boy I know a public company with impressive Argentinian assets that should be of interest to gold related investors, yet it is basically an unknown and has no marketing activity to get the story out and it basically is run like a private company in that regard. It is frustrating as an investor to be in such an investment however as the company meets all of the other attributes you mention I am confident that in the end it will get recognized, but it is hard to stomach at times.
MAC
Hi nodrog
It's often times very frustrating to retail individual investors when companies don't disclose which direction they're going for. I recommend you to take a look at TNR and MAI, the CEO and managements are very open re: directions and burn rate ($$$) and that is becoming an increasingly difficult issue in this credit market. I thikn the juniors who keep their investors apprised of situations (and of course good projects like MAI / TNR's 11 billino lbs of copper!) will come out on top.
Good luck to you! Thanks for the comments!
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