At first investing in mining seems as daunting as any other investment, but once you begin to understand the basics you can earn a lot of money when you keep a long-term perspective.
Here are three factors I have found to be most important when assessing junior mining companies.
- Management. This is the most important yet also most difficult factor to assess. How on earth do you assess management? Looking in from the outside you will naturally encounter a degree of information asymmetry – the aim of the game is to address this imbalance back in your favour. Two ways of doing this, based on my past experience, include:
- digging deep on the internet;
- e-mailing the CEO with no more than three razor-sharp questions.
Both actions will give you at least an idea of management quality.
- Share structure. Too many junior exploration companies print shares like Central Banks print money in bad times. Achieving milestones without too much dilution is key in mining. Of course this factor is heavily correlated with the quality of management.
- Property. This might be controversial but in my view management and share structure are more important than property. Why? Because a mediocre property can be very profitable when the management and share-structure are both top-notch. It doesn’t work the other way around!
One last note: some people make a lot of money in short-term trading within mining as well as other industries. That is not investing – it’s speculating. I honestly have no clue how speculating works, I have tried but never succeeded. It’s probably just not my cup of tea.