A Cheat Sheet to Investing in Mining Stocks

A Cheat Sheet to Investing in Mining Stocks

The US dollar has squandered its right to US dollar dominance, says Andy Schectman.

When you export your jobs and your skills, you have what’s called the cluster effect…leaving you with a loss of talent, says Byron King.

Dr Nicole Adshead-Bell shares insiders’ tips on what to look for in mining companies.

Adrian Day reckons modern-day geologists are losing their intuition when it comes to understanding rocks.

And Doug Casey reckons America is heading for a civil war.

Yep, that was just day two of the Sprott Natural Resource Symposium.  

A cheat sheet to investing in mining stocks

Imagine if you had a cheat sheet for investing in mining stocks.

Well, that’s exactly what Wednesday morning’s first panel delivered to the crowd.

The mix of geologists and investment advisers gave the crowd simple tips on what to look for when it comes to mining.

Obviously, there was the usual ‘You want to see a good deposit’ information. And it goes without saying that cash is king.

Also, avoid a company with a balance sheet boosted by a fresh capital raising. You don’t want to see the company raising money and then watch it all go to company salaries.

But management is crucial in order for a mining or exploration company to survive.

Dr Adshead-Bell said you can understand a company’s management team better by looking at ASX announcements. Not company presentations or anything that reads like a glossy brochure. But the sort of updates a firm has to provide to the ASX.

Essentially, when it comes to mining companies, look for firms with a history of under-promising and over-delivering.

The sort of businesses that continue to beat their own guidance. Go over about 18 months’ worth of updates, and you’ll pick up on the tone.

Strong management teams tend to increase the likelihood of share price growth over the long term.

Oh, the panel also said that if a commodity is in a bull market, look out for how many ‘hedges’ a company as. But that’s a tricky topic, which I’ll dive into next week.

I want to get paid

One thing I have noticed at this conference is the number of geologists turned investment-something.

Some have ditched digging up rocks to become advisers. Some moved on to brokerage houses. Some raise cash for miners and others write those reports you can barely understand.

The point is, among the ones who left the industry, their reason for doing so is the same: A steady pay cheque.

We often end up as taxi drivers in between gigs’, joked Dr Adshead-Bell on the panel. She that because geology is a cost that doesn’t provide an immediate return, it’s the first expense to go when the times get tough.

Furthermore, the majority of commodity projects being assessed or developed right now is the result of extensive geology work in the 1990s.

There’s another side to this, though, as I discovered in my one-on-one interview with Adrian Day.

Miners are spending their money on looking at old brownfield sites.

Now, a brownfield site is an old mine that is close to depleting its resource. However, brownfield exploration simply involves looking around an existing mine site to see if there’s more of the mineral available than first thought.

Plus, geology technology has changed an awful lot in the past three decades. Meaning that new types of geophysics airborne scans can show a mineral deposit that’s bigger than initially thought.

The problem, Day said, is that there’s a new generation of geologists losing the ability to trust their instincts. This is in contrast to old-school geologists, who could trust a hunch thanks to years of hanging around rock deposits. It’s a lot harder to develop those instincts when you only see computer data…

Back-to-back interviews

Perhaps the most eye-opening interview from yesterday was with a precious metals dealer called Andy Schectman. I found his speech so moving, I practically stalked him off the stage…

Schectman pulled no punches. He kicked off his speech with some comments about price manipulation. He explained how JP Morgan is hogging the largest physical silver position in history.

The investment bank is using similar tactics to the Hunt brothers to corner the silver market…yet the Hunt brothers went to jail, whereas JP Morgan is free to do what it’s doing.

After an interview with Jim Rickards, another geologist and then another investment adviser, it was time to shut up shop and have a little downtime.

In spite of the fact that I am not a speaker, I was invited to hang out with the presenters on a river cruise last night.

Jim Rickards on the cruise

Source: The Daily Reckoning Australia

Here’s the crazy part. I’ve still got two days left to go.

I’m yet to hear Jim or Grant Williams talk. This means I have two ‘big information’ days ahead of me.

Stay tuned,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia