Some comments on picking explorers: my experience
I have noticed several investors on forum are interested in having exposure to juniors but are afraid by buying into a hot story without any fundamental backing or already too expensive.
In order to avoid all this: do you own due diligence, visit some trade shows, read newsletters, but do not follow advice blindly, just use this information as a long term basis for your decision making.
I started investing in juniors in 2004. Typically I invested in names like AG, EXK and anything silver related, just to discover in the next downturn that 90% of these companies had no real earnings behind them.
Therefore I decided to look for tools to value stocks like ounces in the ground, PEA, NPV, …. you name it, and from 2008/2009 I gained big by focusing on developers and small producers that all went up 5-10 times.
Of course, with picking the right junior you can maybe make 10 times your money or more, who knows, but the risk remains very high.
There fore some investors prefer to decrease the risk of exploration and focus on brownfield assets. A lot of successful stories were Integra and now Pure gold mining. New stories are Integra (again) and Revival Gold developing assets in Idaho. Others are Falco (FPC), NCA, LGD, C, NHK,…
I believe a diversified mining portfolio should have several small/mid cap producers like GUY, EDV, BTG, PVG, KDX,MUX, some development stories like SBB, PGM, NHK,CDV Integra,… and some smaller explorers.
But there comes my end remark, some explorers, not too many! Companies like NVO, GGI or any other pure exploration company should be regarded with lots of skepticism, and only a small position of portfolio should be taken!. If it doubles or triples, sell some, if it goes south, do not add to positions, unless you know what you are doing!
And sometimes if you want to make big money, just wait until a story develops, and add the ticker of that company to your watchlist, no emotion if it goes up, just WAIT and watch the story developing.
I did this the last years with several stories that went up very fast in 2016 and I was too late to buy them, I just watched the charts from time to time, read the fundamental info to see the company makes progress and 12-18 months later you can invest at a far better entry price, with less risk and better fundamentals. Of course this does not happen all the time, but my advice here is never jump too aggressively on a story, there are always opportunities elsewhere. And the best explorers to go with are the names that have already proven ounces, with good management and visibility to go to 1M-2M ounces or more, because these small deposits, nobody cares!
And last but not least, share structure and company progress is very important too.
If a company can not at least raise 4/5M$ or more/year better look elsewhere, as drilling is an expensive business. I therefore do like NVO as it has the cash to do what it wants. I would never invest in explorers with only 0.5 Million in the bank.
On top of that, the share structure is important! Has management recently bought in the market or do they only have an option plan? And what about dilution? If there are too many options and warrants outstanding, avoid he company I would say as any company progress will be diluted away by warrants exercising. Therefore never invest in companies that have excessive warrants outstanding or doing placements with 5 year warrants like ALTA, TBR, R and others,…
Is the time and effort involved really worth the return? Why not just go long semi’s, biotech, FANG, etc.
Once gold is in a real bull market and gold has made new highs the next years you will talk differently. But I agree, it takes time to know this sector, but rewards can be huge as in tech and Biotech. We will see in 2 years which market will be the strongest.
Roughly agree. The amount of effort you are talking about with respect to building a portfolio of miners would be a full time job for most people.
Thanks for sharing Alex. It’s a mine field for sure, especially the micro-caps.
I look for people I like and can trust based on their track record, and stories that make sense to me. Then lots of research and reading… FWIW, the kind of story I like is Northern Dynasty (NDM/NAK in the US), in which I’m pretty heavily invested. I know the story pretty intimately, they’ve had a lot of excellent catalysts recently (that I think have been somewhat misinterpreted or minimized by the market), and there’s not exploraion risk. The resource is already defined thanks to about $750M spent by Anglo and others. Stock valuations have not followed yet, but that’s exactly how I like to make money in resources: The arbitrage between value that will come from the proper interpretation of facts and the current market sentiment. I made some good money on Claude resources (which was bought by Silver Standard) in the middle of the bear market this way. I’m expecting good results from Northern next year, as well as a fairly significant revaluing of the project over the medium term (about 2 years). I’m also willing to wait longer if necessary, and hope to hold a portion of this project one way or another over the long term. A good project with issues* that you understand and consider navigable can represent great value if you have patience.
*for NDM it’s misunderstanding/misinformation on environmental impact on the Bristol bay watershed.
Thanks, Alex. True, if the PMs take off, it will be all worthwhile.