By Jennifer Schell, B.COMM, MBA
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.
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 powerlines, 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!
CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of CIBC and a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada.
This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2017.
Jennifer Schell is an Investment Advisor with CIBC Wood Gundy in Toronto. The views of Jennifer Schell do not necessarily reflect those of CIBC World Markets Inc.