Read The Forum Rules: We have a clear set of rules to keep the forum running smoothly. Click here to review them.

Post Reply 
Investing in the Mining Industry: Insiders view
Author Message
Viralata Offline
Sparrow

Posts: 75
Joined: Apr 2011
Reputation: 3
Post: #1
Investing in the Mining Industry: Insiders view
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.
(This post was last modified: 09-18-2011 09:05 PM by Viralata.)
09-18-2011 08:39 PM
Find all posts by this user Like Post Quote this message in a reply
Saladin Offline
Pelican
****
Gold Member

Posts: 1,690
Joined: Nov 2010
Reputation: 34
Post: #2
RE: Investing in the Mining Industry: Insiders view
The mining industry can be massively corrupt and destructive to the local communities and ecosystems. I advice that anyone that thinking of investing do the research to make sure the mining company isn't steamrolling over the local area. Moral concerns aside, even if you do invest your project will run into problems. My dad practically screwed a huge UK company out of millions by creating huge roadblocks in their destructive project as he was the genius behind the movement against the company's project. It just takes a few smart guys and a bunch of pissed off locals to completely stop a project. Trust me when I say that mining companies lie out their asses about their environmental sustainability and what they do for the local community.
09-18-2011 09:18 PM
Find all posts by this user Like Post Quote this message in a reply
Viralata Offline
Sparrow

Posts: 75
Joined: Apr 2011
Reputation: 3
Post: #3
RE: Investing in the Mining Industry: Insiders view
(09-18-2011 09:18 PM)torontokid Wrote:  The mining industry can be massively corrupt and destructive to the local communities and ecosystems. I advice that anyone that thinking of investing do the research to make sure the mining company isn't steamrolling over the local area. Moral concerns aside, even if you do invest your project will run into problems. My dad practically screwed a huge UK company out of millions by creating huge roadblocks in their destructive project as he was the genius behind the movement against the company's project. It just takes a few smart guys and a bunch of pissed off locals to completely stop a project. Trust me when I say that mining companies lie out their asses about their environmental sustainability and what they do for the local community.

Your father sounds like a good man with good intentions. This is good advice. However, painting the entire mining industry with such broad strokes belies a lack of understanding. Because my industry tends to be highly technical, most people have the tendency to react as you do. Thats fine, but it is my hope that by educating people how it works that they can make wise and socially responsible investment decisions. I have no agenda other than giving something to this forum back a little through sharing.

First of all, one must distinguish what stage of "mining" you are talking about. Most companies are engaged in exploration and there is no active mining happening, only the potential for mining activity, as such the environmental impacts are nil, only the potential for environmental impact. Many people hear the word "Mining" when what is happening on the ground is "Exploration", there is a big difference.

I'd love to discuss with you about the impacts, modern and historical, of the mining industry. But I'd like to keep this thread focused on the technical details of investing and understanding mining projects without it degrading into a referendum on the "mining industry", although your posts does raise some very valid concerns. Environmental and social issues are a major topic for any modern mining project and can be a major issue for investors, and one that I intend to touch upon, with examples.

We all rely upon the mining industry for nearly very single thing we do. This is a fact. Reactionary attitudes and environmental scare tactics employed by decidedly anti-mining groups do nothing to further the discussion that is needed as to where and how we should mine responsibly, nor do heavy handed tactics and political bullying by mining companies with deep pockets.

In my experience, which is first hand, the majority of companies engaged in Exploration are working with local communities to ensure that there is understanding regarding the direction that the project is taking. Are there exceptions to my experience? Yes, but that doesn't change the fact that we all want "shit", such as the computer I'm typing on right now. The rules for the behavior of these companies are not controlled by the companies themselves, they are written by the governments, although the companies can have undue mal-influence on how the local rules are used and interpreted. It is often a combination of money and corruption that leads to the sorts of situations you speak of. I hope that my experience will help people to avoid investing in these sorts of companies, as it is unsound both economically and socially, particularly in the long term.

Is there corruption, abuse of local communities and a long list of environmental disasters initiated by the mining industry? Yes!

It is all of our responsibilities to remove the veil of misunderstanding that cloaks the industry by educating ourselves so that there is more transparency in the relationship between these entities and our respective governments. It is our jobs, as consumers, to understand where and how our products are made, or to not consume.

A wise and active investor is the first of many steps that can be taken to ensure that what ends up as a product that we use was not made at the expense of the community or of the environment.


Again, I have no other agenda here than to share.
(This post was last modified: 09-18-2011 10:23 PM by Viralata.)
09-18-2011 10:17 PM
Find all posts by this user Like Post Quote this message in a reply
Westsider Offline
Pigeon

Posts: 7
Joined: Mar 2011
Reputation: 0
Post: #4
RE: Investing in the Mining Industry: Insiders view
Viralata:

Is your background in geochemistry? I'm a student consulting for a small US company that invests in O&G as well as mining & metals prospects, but would like any advice you can give on how a young scientist can break into companies doing the actual extraction.
10-24-2011 09:20 AM
Find all posts by this user Like Post Quote this message in a reply
Viralata Offline
Sparrow

Posts: 75
Joined: Apr 2011
Reputation: 3
Post: #5
RE: Investing in the Mining Industry: Insiders view
No, but I have a lot of experience with Geo-chem. I am a Structural Geologist.

If you live in the USA, your best bet is to move to Reno or to Alaska, perhaps Arizona. There is large, active mining communities there. It is very difficult to "break in" to the mining community in the USA and the older guys protect their jobs like they're going extinct. You will have a longer and harder time getting into mining if you stay in the USA and you will be paid up to 40% less than a comparable position in Canada or Australia. Good news for you is that because of NAFTA, if you are a geo-scientist, you are on the list of jobs that get to work across borders. I have worked a ton in Mexico, the US and all over Canada moving across borders with no issues. Also, Australia has a good working visa program with the USA where you can go there and work. I suggest that you get on the career sections of websites infomine.com or miscojobs.com and look through the available positions in Canada and Australia and start contacting potential employers about work in those countries. Your career will proceed at a much more rapid pace, you will learn more, you will travel more , you will be given more responsibility earlier in your career and you will get paid more than if you stay in the USA.

After 10 years in the industry I charge up to 1000$ a day for my services depending on the type of work I'm doing. In Canada and Australia, due to the shortages of Geo-scientists, if you look around you can start out at 400-500$, DOE. This is good money when all your expenses are paid. A comparable job in the USA will get you maybe half that. Get lots of international experience overseas and then after a few years you will be able to pick and choose your jobs anywhere.
11-03-2011 11:43 AM
Find all posts by this user Like Post Quote this message in a reply
Viralata Offline
Sparrow

Posts: 75
Joined: Apr 2011
Reputation: 3
Post: #6
RE: Investing in the Mining Industry: Insiders view
GRASS ROOTS: CONTINUED....

As I stated in the previous post, investing in early stage Exploration phase projects and companies carries the highest risk and also the highest rewards. If you are smart, you will try and invest in a quiver of companies that show good potential for either growth into later development phases or that have a good resource and favourable economics for getting bought out by a larger company.

Exploration and investing in the Venture Exchanges is a minefield....filled with pseudo-sheisters pumping up their projects and releasing deceptive news releases regarding their results from their exploration drilling projects. How can the average investor sort through all the information?

The fact is that they can't. Unless they are the type of person that really likes to do their homework, and it could turn into a full-time job. You will need to hold a diversified set of investments in the sector covering several different positions, from higher to lower risk. A good place to start, if you want to play around with the penny Exploration stocks in the Venture Exchanges is to pick a few in a commodity at random and watch their performance over a few months. If they are exploring in the Northern Hemisphere, particularly Canada, then pay close attention during the months following summer, when much of the geochemical and assay results become available from the summer's drilling campaign. You will likely see a nice bump in your stocks if the the exploration program achieved positive results...but be warned, the market is fickle, and too little results, however positive can be as damning as poor results. Consistency is the key. Stay away from companies that show inconsistent results from exploration, no matter how positive some of their data seems. It is possible to make money off these types of projects, but it requires a fast hand. For the average investor, this is not usually feasible.

Back to Nuts and Bolts...

Data reported by a exploration company will appear in the form of drilling results, such as 10grams/tonne Gold over 10m (an amazing result by the way). Drill results tend to be the most anticipated news release item by companies in exploration as it is these drilling results that are used to create the official 'Statement of Resource" for the JORC or 43-101 compliant report.

Here is a website that allows investors to view drilling data in 3D: http://www.corebox.net
It is important to help understand the geometry of the deposit, the location and relative scale of important drilling intersections, and the overall pattern of the drilling program. Use it to better understand the way that drill data is used to sample and define an ore deposit. Once you are satisfied you understand the drilling, cross-reference the data with news releases on the companies website, and finally cross-reference the news releases with performance charts on Yahoo finance or a similar site. You will start to notice the importance of the release of news and movement in the price of the stock. Use this to your advantage. As an investor in particular company you have the right to know when and where the activities of the company will take place. Be active, ask questions! If they plan on a large summer drilling campaign in Canada, you should know how the drilling is proceeding, how quickly the lab turns around assay samples on average and use this to anticipate important news releases.

For those interested...pick a few companies from the corebox.net site that you like and a even couple you don't, for whatever reason, and follow them for a few months. Watch closely how the movement in the stock coincides or doesn't coincide to events happening within and external to the company. Once you have a better feel for the rhythm of movement...get on the floor and dance.


CONTINUED LATER....
(This post was last modified: 11-03-2011 01:20 PM by Viralata.)
11-03-2011 01:00 PM
Find all posts by this user Like Post Quote this message in a reply
Gunner Offline
Kingfisher
***

Posts: 573
Joined: Jun 2010
Reputation: 12
Post: #7
RE: Investing in the Mining Industry: Insiders view
Right now Im invested in silver miners AG(First Majestic) EXK(Endeavour Silver), any opinion?

For micro companies Im stalking AAU(Almaden)
11-03-2011 09:50 PM
Find all posts by this user Like Post Quote this message in a reply
Viralata Offline
Sparrow

Posts: 75
Joined: Apr 2011
Reputation: 3
Post: #8
RE: Investing in the Mining Industry: Insiders view
I try to avoid giving advice on specific stocks. For two reasons, one is that if people trusted my opinion on stocks I'd be in a different line of work...
The other is to avoid current and future conflict of interest.

Silver is volatile and seems to attract a lot of speculation. A large part of the value of the market is speculation. You can make money if you can move quickly to take advantage of the market. If you like the fundamentals of the company, then hold it.

If you're in for the long term, stick to fundamentals. The strategies behind high volume short term trading and short selling are beyond me.

There are a few likely outcomes for the companies you're invested in...they will fail to develop their properties and disappear(most likely), they will sell or drop the project and move on to something else(likely), they will get bought out(unlikely), they will go into production(highly unlikely).

The big fish in the Industry are always looking to grow through acquisition....they will let the small companies battle it out in exploration and then snap up the projects that they like. There are regions and metals that come into "fashion" for a number of reasons...if you can develop a understanding for the way that the big fish are feeding you can try and get out in front of them before they acquire smaller companies. They will hand out crumbs to some of the companies they like, through equity placements and capitol, to see if anything comes of the project, so pay attention to who's getting fattened for slaughter.

Ultimately, I'm not sure how "long" I would view any particular exploration stock...like I said in the previous post... your ability to anticipate news releases and act on them are going to be the primary internal driver of the price. I'll usually play with a stock while it's hot, and then move on. If it looks like a good project to me then I'll (rarely) hold on to it. For "long" I stick to mid to high level producers.

Exploration speculation is a gamble. If you're serious about it you should get have a bankroll of funds that you consider "already gone" when investing. The message is to not fall in love with any of them...they are expendable and should be treated as such. Use them and move on to the next. This advice should sound familiar : )
11-05-2011 11:59 AM
Find all posts by this user Like Post Quote this message in a reply
Viralata Offline
Sparrow

Posts: 75
Joined: Apr 2011
Reputation: 3
Post: #9
RE: Investing in the Mining Industry: Insiders view
11-05-2011 03:23 PM
Find all posts by this user Like Post Quote this message in a reply
Viralata Offline
Sparrow

Posts: 75
Joined: Apr 2011
Reputation: 3
Post: #10
RE: Investing in the Mining Industry: Insiders view
11-20-2011 12:10 AM
Find all posts by this user Like Post Quote this message in a reply
Viralata Offline
Sparrow

Posts: 75
Joined: Apr 2011
Reputation: 3
Post: #11
RE: Investing in the Mining Industry: Insiders view
A great article on the top mining bloggers, newsletter writers and speakers: a list of who to follow for investment advice

http://www.mining.com/2012/01/02/237890/
01-02-2012 08:29 PM
Find all posts by this user Like Post Quote this message in a reply
thegameoflife Offline
Sparrow

Posts: 61
Joined: Oct 2010
Reputation: 3
Post: #12
RE: Investing in the Mining Industry: Insiders view
Although I usually don't give out specific companies when I talk with friends and family I see a huge opportunity in Sandstorm Gold (SSL) developing. It has gone on a crazy ride since I bought in a year ago but the company has so much going for it.

- You are basically getting top notch management (former CEO of Silver Wheaton which grew a company from $3.00/share to almost $40.00 in less than 5 years) to choose the companies/mines to invest in for you.
- The company is a streaming company so there is actually no mining. Think of it as a bank that only lends money to mining companies in exchange for a percentage of the gold mined at a low fixed cost (usually around $500.00). No mining means less operational risk
- Insiders own 20%+ of the stock. As many of you are aware, insider ownership is a very bullish signal.
- No debt. Very rarely do companies run with no debt but that is exactly what Sandstorm is doing at the moment. Having no debt means more of the companies revenues (top line) are profit (bottom line). It is also nice knowing that the company will be able to survive in a deflationary environment like 2008.

I highly suggest looking into this company for precious metals exposure as I feel the risk/reward profile far exceeds most companies. If you have any further questions on SSL or investing in general feel free to fire me a PM.

FULL DISCLOSURE: I own a significant amount of SSL-V in my TFSA
03-05-2012 01:55 AM
Find all posts by this user Like Post Quote this message in a reply
Post Reply 


Possibly Related Threads...
Thread: Author Replies: Views: Last Post
  Morally Responsible Investing redbeard 15 853 12-07-2019 12:09 PM
Last Post: Diocletian
  Investing in Apartment Complexes puckerman 6 1,450 11-25-2019 08:40 PM
Last Post: puckerman
  Investing to Save for a House Lazuli Waves 15 1,685 11-10-2019 08:50 PM
Last Post: Lazuli Waves

Forum Jump:


User(s) browsing this thread: 1 Guest(s)

Contact Us | RooshV.com | Return to Top | Return to Content | Mobile Version | RSS Syndication