Having worked all over the world in the mining industry as a consultant I have a unique perspective . I’ve worked with nearly every commodity, from gold, diamonds, copper, molybdenum, silver, coal, iron, lead, zinc, you name it, I’ve been involved in some capacity. I’ve seen some amazing projects fall apart due to poor politics, and I’ve seen some mediocre projects go to market due to impeccable management.
Because of my position, I have access to the kinds of data, on a daily basis, that brokers would kill for. In fact, more often than not, I am tasked with the generation, analysis and quality of that data. I am not involved or educated to understand the ins and outs of financial markets or schemes, I am a scientist tasked with the development of mining projects. I can only offer my experience, others may have wildly different experiences. I am eager to share as well as hear about other peoples failures and success stories.
I want to offer a bit of an insiders view and perhaps share a little insight that I’ve gained over the years.
A lot of people ask me once they hear about my profession “how can I invest in the mining industry?” I understand that it can be daunting. Reading and understanding technical reports is beyond most peoples capacity and/or patience. Sifting through the endless industry propaganda can be pretty intimidating.
I will offer a few general guidelines regarding investing wisely in the mining industry and then offer some personal experiences. I am also happy to answer questions.
The primary question we face in our industry are: What is it? Where is it? How much of it is there? How much is it worth? and How much will it cost to get it out of the ground? Pretty much everything we do can be framed by these questions. The rest are details.
I work with all of these questions, because my expertise requires that I am actively involved in answering all of them.
Risk in my industry can be, generally, broken down, from greatest risk to least risk, by what phase in the process the Project resides. From initial discovery to production as follows (from highest to lowest risk):
Exploration(several phases)>Feasability>Pre-Production>Production>Closure
Any company you may be interested in will be in one of these phases, or more likely, will have diversified their risk by holding a quiver of properties in various stages of development. . This allows the company to diversify their risk. As a smart investor, you will do the same. These phases are more of a “spectrum” as opposed to discreet stages. For example, it is quite common for some savvy exploration companies to initiate small scale mining of the high grade components of their deposits to fund the continued exploration or to fund other projects.
In my experience, the main issues that any mining project faces with getting their product to market are, in random order: politics, transportation, quality of deposit, ability to recover the given commodity, social/community issues and management. Any one, or combination, can sink that stock you just put your savings into. It is your job to find out exactly what’s happening on the ground (and under it) with your potential investment.
If you don’t have a stomach for high risk, then stay away from exploration. You’re better off investing in a fund and let someone else do the work for you. But, if you are willing to put the time in and educate yourself, you can see some high percentage returns.
Investing in Exploration is a gamble. Perhaps 1 in 100 deposits that are discoved will make it into production, just to give you an idea of the odds. But, we don’t care, we are here to make money, not to get our custom suits and spats filthy. In spite of these odds, you can still make money in exploration if you know when to get in and out.
On this post I will focus on the most high risk portion of my industry: grass roots exploration.
Let me give you a made up example:
I will gloss over a lot of detail in these examples, so ask any questions that you may not understand. No question is too basic (what is a rock?). There is a lot of technical information on the websites of mining companies and it will be like greek to the majority of investors.
Ok, let’s start.
Say Company X acquires the rights to some land in Country Y because there is some good indications that there may be a significant amount of gold.
This is very important. Who holds the land of any potential project can be a real potential mess. Try to look for companies that hold 100% long-term leases of the land they wish to develop. The leases should be in stable regions or countries with a long term history of being mining friendly. It is not always the case, but if there are multiple parties holding the same leases in some sort of shared arrangement, things can get very messy indeed.
At this point Comapny X is in the phase of development known as “Exploration”. Most of the activity that the company will be focused on delineating and expanding the resource (see reference 1). In terms of gold, once a threshold of 1 million ounces has been reached, most small companies start getting noticed, particularly if they have all the other components for a successful project in place, politics etc…
You as the investor want to get on board with companies that are sub 1 million ounces, but are moving quickly in that direction with good sound results from their exploration campaign. It will be your job to understand how the other components that I outlined previously can derail even the most richest of deposits, for example poor transportation infrastructure or unfavorable politics.
GRASS ROOTS: TO BE CONTINUED LATER…
Reference #1
“Resource” defined: All mining companies, particularly exploration companies, that wish to raise money publicly do so on the two primary global markets for venture capital for the mining industry: The TSX, Toronto Stock Exchange or the ASX, Australian Stock Exchange. Due to some past, highly publicized scandals, such as the Bre-X scandal (Google "Bre-X scandal") that brought a significant amount of much needed oversite into our industry, most companies supply these resource statements.
Today, most companies wishing to raise venture capital will provide an official statement of resource that has been performed by an independent party, such as my company, that conforms to the codes set out in either the NI43-101 code for the TSX or the JORC code for the ASX. The codes vary between the ASX and TSX and vary in their ability to protect the investor. You should take a bit of time to understand the goals and limitations of these codes.
A statement of resource is basically a statement of how much “stuff” is in the ground. It is beyond this fórum to go into detail regarding how this is done.
In the end you will see that the resource is broken down into three types: Proven, Indicated and Inferred. You should always focus on the first two when decyphering any statements of resource. Proven and Indicated are the most likely to reveal, for the beginning investor, the viability, or continuing viability, of a particular project.
Because of my position, I have access to the kinds of data, on a daily basis, that brokers would kill for. In fact, more often than not, I am tasked with the generation, analysis and quality of that data. I am not involved or educated to understand the ins and outs of financial markets or schemes, I am a scientist tasked with the development of mining projects. I can only offer my experience, others may have wildly different experiences. I am eager to share as well as hear about other peoples failures and success stories.
I want to offer a bit of an insiders view and perhaps share a little insight that I’ve gained over the years.
A lot of people ask me once they hear about my profession “how can I invest in the mining industry?” I understand that it can be daunting. Reading and understanding technical reports is beyond most peoples capacity and/or patience. Sifting through the endless industry propaganda can be pretty intimidating.
I will offer a few general guidelines regarding investing wisely in the mining industry and then offer some personal experiences. I am also happy to answer questions.
The primary question we face in our industry are: What is it? Where is it? How much of it is there? How much is it worth? and How much will it cost to get it out of the ground? Pretty much everything we do can be framed by these questions. The rest are details.
I work with all of these questions, because my expertise requires that I am actively involved in answering all of them.
Risk in my industry can be, generally, broken down, from greatest risk to least risk, by what phase in the process the Project resides. From initial discovery to production as follows (from highest to lowest risk):
Exploration(several phases)>Feasability>Pre-Production>Production>Closure
Any company you may be interested in will be in one of these phases, or more likely, will have diversified their risk by holding a quiver of properties in various stages of development. . This allows the company to diversify their risk. As a smart investor, you will do the same. These phases are more of a “spectrum” as opposed to discreet stages. For example, it is quite common for some savvy exploration companies to initiate small scale mining of the high grade components of their deposits to fund the continued exploration or to fund other projects.
In my experience, the main issues that any mining project faces with getting their product to market are, in random order: politics, transportation, quality of deposit, ability to recover the given commodity, social/community issues and management. Any one, or combination, can sink that stock you just put your savings into. It is your job to find out exactly what’s happening on the ground (and under it) with your potential investment.
If you don’t have a stomach for high risk, then stay away from exploration. You’re better off investing in a fund and let someone else do the work for you. But, if you are willing to put the time in and educate yourself, you can see some high percentage returns.
Investing in Exploration is a gamble. Perhaps 1 in 100 deposits that are discoved will make it into production, just to give you an idea of the odds. But, we don’t care, we are here to make money, not to get our custom suits and spats filthy. In spite of these odds, you can still make money in exploration if you know when to get in and out.
On this post I will focus on the most high risk portion of my industry: grass roots exploration.
Let me give you a made up example:
I will gloss over a lot of detail in these examples, so ask any questions that you may not understand. No question is too basic (what is a rock?). There is a lot of technical information on the websites of mining companies and it will be like greek to the majority of investors.
Ok, let’s start.
Say Company X acquires the rights to some land in Country Y because there is some good indications that there may be a significant amount of gold.
This is very important. Who holds the land of any potential project can be a real potential mess. Try to look for companies that hold 100% long-term leases of the land they wish to develop. The leases should be in stable regions or countries with a long term history of being mining friendly. It is not always the case, but if there are multiple parties holding the same leases in some sort of shared arrangement, things can get very messy indeed.
At this point Comapny X is in the phase of development known as “Exploration”. Most of the activity that the company will be focused on delineating and expanding the resource (see reference 1). In terms of gold, once a threshold of 1 million ounces has been reached, most small companies start getting noticed, particularly if they have all the other components for a successful project in place, politics etc…
You as the investor want to get on board with companies that are sub 1 million ounces, but are moving quickly in that direction with good sound results from their exploration campaign. It will be your job to understand how the other components that I outlined previously can derail even the most richest of deposits, for example poor transportation infrastructure or unfavorable politics.
GRASS ROOTS: TO BE CONTINUED LATER…
Reference #1
“Resource” defined: All mining companies, particularly exploration companies, that wish to raise money publicly do so on the two primary global markets for venture capital for the mining industry: The TSX, Toronto Stock Exchange or the ASX, Australian Stock Exchange. Due to some past, highly publicized scandals, such as the Bre-X scandal (Google "Bre-X scandal") that brought a significant amount of much needed oversite into our industry, most companies supply these resource statements.
Today, most companies wishing to raise venture capital will provide an official statement of resource that has been performed by an independent party, such as my company, that conforms to the codes set out in either the NI43-101 code for the TSX or the JORC code for the ASX. The codes vary between the ASX and TSX and vary in their ability to protect the investor. You should take a bit of time to understand the goals and limitations of these codes.
A statement of resource is basically a statement of how much “stuff” is in the ground. It is beyond this fórum to go into detail regarding how this is done.
In the end you will see that the resource is broken down into three types: Proven, Indicated and Inferred. You should always focus on the first two when decyphering any statements of resource. Proven and Indicated are the most likely to reveal, for the beginning investor, the viability, or continuing viability, of a particular project.
