Tips for investors interested in mining & exploration companies
After his presentation, we spoke directly to Sid Rajeev and asked him about his take on the many junior companies at the VRIC and how investors can navigate the precious metals sector.
According to Rajeev, there are a few important things investors can and should be doing in order to separate better opportunities from poorer ones.
Tip #1: Be Picky
The first thing to do is to be very picky. At the VRIC there were a large number of precious metal exploration companies. Given his analysis on the sector, he suggested a large number of those companies may not make sound investments at this time. Many projects aren’t being developed because of rising costs, so a great deal of the “exploration” is simply a transfer of investor money into the ground. Companies that get created with a focus to meet investor demand instead of being created with a focus around quality projects are especially risky for investors.
Tip #2: Evaluate fundamentals before making a decision
A second suggestion Rajeev offered was to stay away from speculation and rumour. While a tip from friends or neighbours might sound tempting, stick to evaluating the fundamentals before making any decisions. While one cannot become an expert overnight, becoming familiar with the basics of the area investors are interested in is a small but important step most investors can make, according to Rajeev. For example, understanding different types of deposits, what makes a good or bad grade and what makes a good location are all thing investors can do relatively easily.
Tip 3#: Look into the management team’s performance
In addition, Rajeev offered an important potential red flag to pay attention to when looking at a company. When evaluating the management team of exploration companies, do some digging into whether members of the team hop from project to project without any indication of major successes (either in discovery or production). Individuals who move between mining and exploration companies without a track record of creating successful projects don’t inspire confidence with professional investors. A ‘gut-check’ for do-it-yourself investors to ask is “if the professionals don’t accept it, why should I?”
There are opportunities to be had
While the outlook in the near term might seem challenging for junior companies, according to Rajeev’s research, the latter part of the year might see some strength in the TSX Venture. As his presentation laid out, there is value to be found if you’re willing to hunt around for it.
When the investor sentiment turns too negative, sometimes the proverbial baby gets thrown out with the bathwater. In the case of junior mining and exploration companies, if investors approach them the way a major investor would, on the merits of the fundamental components listed earlier, some reasonable opportunities may present themselves.
As it turns out, when looking to invest in mining and exploration companies, investors should still be prepared to dig beneath the surface of the marketing and stories they hear at conferences like the VRIC.