Making Money on Miners, Part I

Making Money on Miners, Part I

At Bullion Bulls Canada, we have made it one of our “missions” to provide a complete learning resource for precious metals miners. Our goal is to offer investors a “tool” which will allow even complete novices to this sector to learn to invest on their own with these companies.

We consider our Mining Company database and “Education Vault” already superior to any other package of information available at other sites. The former provides extensive data on many of the most-promising miners, while the latter offers a complete “teaching” tool regarding all of the principle fundamentals for both precious metals miners, and precious metals themselves.

There is, however, still plenty of room to build upon this. In this piece I will seek to simplify and “connect-the-dots” on various concepts which we have introduced to readers in previous articles. It is imperative that readers (and especially novice investors) familiarize themselves with all of our previous material on this subject, rather than seeking to use this piece as some simplistic “formula” which they can blindly rely upon in order to (supposedly) reap huge gains.

With all mining companies, there is a specific “evolution” that takes place with any/every project which eventually becomes a mine (subject to only rare exceptions). This progression is as follows:

early exploration-> extensive drilling-> resource estimate-> economic assessment-> major financing-> construction of mine-> commercial production

There are two important observations which can made about this mining cycle. First, most but not all of these “phases” imply developments in a particular project which should increase the share price. This in turn implies that each phase of operations is executed competently by management, and (in the case of earlier phases) that the company experiences a certain degree of “luck” in that the mineral resource which they expect to find through their exploration and drilling is actually proven through subsequent drilling results and technical modeling...

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Making Money on Miners, Part II

In the first part of this series, I began by laying out the chronology of events which characterizes the development of practically all mining projects.

1) Early exploration

2) Extensive drilling

3) Resource estimate

4) Economic assessment

5) Major financing

6) Construction of mine

7) Commercial production

I reviewed the first phase of development – early exploration – and began to discuss the second phase: extensive drilling. I wrote in general terms how we as investors plan our investing/trading strategy around these results.

In many respects this extensive drilling is the most crucial phase in the development of any mining project. Obviously the most important aspect of this work is to demonstrate there is enough quantity/quality of ore to justify the huge capital costs which are generally required to bring a mine to production.

Equally important, however, is the efficiency of these mining companies as they explore their properties. Drilling is expensive, labour intensive work. Those management teams who are able to “define” their mineral deposits more quickly and efficiently than their peers will usually reward their shareholders with a superior return on their investments...

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Zitat von LuckyFriday

You have to find the needle in the haystack or to follow an experienced rich investor and expert, who does not need financing at all and after a while is going to sell his shares to the public.

Lucky, I will disagree with BOTH halves of that proposition. "Success stories" among the junior miners are HARDLY a "needle in a haystack". There are DOZENS of highly successful companies (already) and likely more than a hundred which will ultimately end up as huge, financial successes.

Also, there is no need to look to sponge off of some rich "insider" for stock-tips. Hold a basket of these companies, do your "homework", and the ordinary investor can do just as well as the rich-insiders.

Making Money on Miners, Part III

In Part I of this series, I outlined the seven stages of development which characterize the evolution of almost every mine, and then described the preliminary exploration which occurs with a mining project. In Part II, I discussed the drilling-phase of development, and how to evaluate whether a property is being developed in an efficient (and potentially lucrative) manner or whether management has fallen into the “dilution trap”.

Resource Estimate:

We are now ready to move on to the third major phase of mine-development: calculating a resource estimate of the ore deposit which the miner has been drilling. While this may seem like a very straightforward stage in the evolution of a mine, there is certainly the potential for “surprises” here – and also opportunities for the astute investor who takes the time to do his/her homework.

At some point during the extensive drilling necessary to identify a potential, commercial ore deposit a mining company will make the decision to prepare a resource estimate of the mineralization contained in the ore being drilled. As I hinted at in my previous commentary, there are many factors which go into the decision of when is the appropriate time to engage in such an assessment.

Generally, a mining company will not engage in the time/effort/expense of commissioning such a study until they are reasonably sure they have uncovered a sufficient body of ore so that a completed resource estimate will show a deposit with sufficient profit-potential to justify (at least) an economic assessment. They then hope that the economic assessment will conclude that the body of ore is large enough, and the grades good enough so that it is commercially viable to construct and operate a mine...

full commentary: http://www.bullionbullscanada.…old-commentary&Itemid=131

Lucky Friday, you obviously have no personal familiarity with these companies.

To begin with, well over a decade ago Canada brought in a new mining code which (among other things) required that all data reported by these companies had to come from a "qualified person" - someone with the recognized professional certification to ensure the validity of what was reported.

Given the fact that we're in the early stages of the longest/strongest commodities-boom in the history of humanity, and given that Canadian junior miners are the recognized GLOBAL leaders in finding and developing mineral deposits (in nations all over the world) there is no NEED to scam people.

More than 90% of the world's gold and silver mines were driven out of business when banker-manipulation pushed the prices of gold and silver well below the cost of production for most of these mines. So there is no need to tout "moose pastures" when there are THOUSANDS of old mine sites (alone) all over the world. And there are still MANY new deposits being discovered.

You should educate yourself before seeking to comment further on these companies.

Hi Lucky Friday.

My reason for assuming that you were not an experienced investor with these companies was with respect to the odds that you quoted. If you're referring to LISTED companies on the TSX or TSX-V (Venture exchange), the percentage of companies which are successful is MUCH, MUCH higher.

The first point to make is that only a small percentage of these companies EVER intend to go all the way from early exploration to production. Most are intentionally and explicitly "project generators". That is, they have geological expertise in their companies - but no engineering or production expertise (or very little).

They FIND good properties/projects. They demonstrate robust mineralization. And then they farm-out the project to larger, more established miners. Sometimes they "JV" a project, go along for the ride all the way to production - and then spin-out a NEW exploration entity to start the process with new properties.

Some of the EASIEST gains to make in this sector is AFTER one of these companies has funded a new drilling program at a very prospective property, but before drill results start coming out.

If you mix in companies like these with smaller producers and near-producers (and make your picks with a reasonable amount of skill), you will produce a return on your investment which simply cannot be equaled in any non-commodities based portfolio.

That is the real "story" with these companies. And as a Canadian (living in Vancouver), I am literally much "closer" to these companies than yourself. At the same time, I realize that there are a lot of experienced resource investors in Germany - as Frankurt is the leading European exchange for these companies - which is part of the reason I have spent so much time on this forum.

If you're an experienced investor, you should come to our site and have a look at the database compiled by my partner, Brian Boutilier. Is there a "moose pasture" or two amongst the more than 100 companies in our database? It's certainly possible. But that's why we ALWAYS advocate holding a "basket" of them. So that IF one of these companies should happen to slip through our/your screening process that the losses are more-than-acceptable in relation to total returns.

Making Money on Miners, Part IV

In dividing-up the “evolution” of a mining project into seven specific phases, these individual phases are not equal increments – in terms of either the amount of time required, or the amount of money spent. Rather, they mark milestones in the development of a mining project which tend to lead to upward revaluations of the company, and (with regard to several of these phases) an “upgrading” of the company’s status as a mining company.

A miner with a resource estimate completed on its mineral deposit is deemed “more advanced” than one which merely has a collection of drilling intercepts. A company with a “feasibility study” under its belt (along with a resource estimate) is closer to production than a company with a resource estimate alone. As these companies inch closer and closer to production, two other factors emerge. The “discounting” of these mineral assets is reduced as a company gets closer to generating actual revenues from a deposit, and the level of risk in investing in a company declines – since there are now less things that can go wrong.

The trade-off for this decline in uncertainty and risk is a commensurate decline in the potential up-side for these companies. The earlier-stage companies are clearly much riskier, but offer investors more potential gains – as all of these developments (and the upgrades in valuation which usually accompany them) still lie ahead in the life of these companies.

This is why experienced investors in this sector balance their holdings between earlier-stage companies and producers/near-producers. We hold the former to provide us with the highest growth potential, while we hold the latter to reduce our overall level of risk – while still providing superior returns versus most other sectors...

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Zitat von Liberty01

There are "project generators" with quite a few potential projects including exploration for different commodities. I know two well-run Canadian companies of that kind, both with very good exploration results and very good staff, also in the PM sector. Unfortunately, their successes is not reflected in higher stock prices. I wonder whether it is currently too difficult for them to find JV partners. Or are there other reasons.

Liberty01, no there are no shortage of potential "dance partners" either for your companies - or any others. In fact there are likely far MORE potential JV partners around right now than at any time in decades. There are two reasons for this: fat operating margins mean companies are swimming in cash AND declining reserves for the larger producers mean they MUST add new projects to their pipelines.

That said, these companies tend to "move" only when the level of bullish sentiment "reaches" their category. Thus the FIRST companies which ALWAYS move higher when sentiment starts to improve are the "producers". Next comes the "near/producers/advanced-staged exploration projects, and then (finally) when sentiment REALLY gets bullish the "earlier" juniors also pop higher.

What we are seeing at the MOMENT are the bankers (i.e. the "shorts") jumping ALL OVER the miners - TRYING to push them down. They are HORRIFIED that the miners might have a big RALLY at a time of year when the miners have ALWAYS been weak previously.

This tug-of-war will END (one way or another) over the next week to 10 days. EITHER bullion will stay strong, the shorts will get CRUSHED, and the miners will ROCKET higher; OR the bankers will also manage to turn bullion lower - in which case there will be further weakness in the miners.

Personally, I am HOLDING all my shares rather than selling anything...

Making Money on Miners, Part V

In Part IV of my series in analyzing the “evolution” of a mining project, I left off having just discussed the “economic assessment” phase. This is an extremely technical, detailed study of the mineral resource – which provides a wealth of information for investors, and the mining company itself.

For the first time, investors are given a clear picture on what precise metallurgical process will be used to extract the metal(s) from the ore, how great the production capacity of the mine will be, the costs of constructing such a mining facility, the profitability of the mine and the “internal rate of return” (IRR) on capital – based upon specific price-assumptions for the metal(s) contained.

Of equal importance, once the miner reaches this level of development, they have crossed the boundary from being (merely) an “advanced-stage exploration project” to a “near-term producer”, because for the first time the company can now plot a clear-and-direct path to commercial production. This enhancement in status not only tends to lead to appreciation in the share price, but this additional layer of information (and certainty) reduces the risk of the project. This, in turn, tends to reduce volatility in these companies, and when there are inevitable pull-backs in the sector, “near-term producers” tend to hold their value better than the mere advanced-exploration projects.

Ideally, the economic assessment only solves/answers the issues and problems of mine construction – rather than creating new problems, but this is not always the case. As I alluded to in Part IV, if the mineral deposit is situated in a particularly environmentally “sensitive” location, or if the process needed to extract the ore is especially toxic/polluting in nature, or if a company is seeking to construct a very large mining facility then there can often be difficulties in obtaining the necessary permitting...

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