DENVER, CO — As someone who is constantly evaluating junior mining stocks, I am finding that it is becoming increasingly important to be even more selective when buying shares.
With the tight supply/demand situations in base and precious metals, huge sums of money are being spent to find new economic deposits worldwide. While this is happening, there is a growing awareness amongst new investors that tremendous opportunities for profit exist in the metals exploration and development companies.
This growing interest will be a major catalyst for increased buying and higher share prices as this bull market progresses into 2007 and beyond. The future looks very bright for both precious metals and base metals companies that can discover, and develop an economic producing mine.
The relatively small group of investors that have been in this sector the past six years have already seen spectacular gains, which for the most part went unnoticed by the mainstream investing public. These investors who focused on the metals sector during that time period had some easy pickings as the bull market began to unfold. Moving forward, it looks like the easy picks are over, and that it will become more difficult to find the big winners.
As opportunities to invest in companies come to you, don’t be so quick to just jump in. Most investors have limited investment dollars and they need to be very selective about which companies they are willing to invest in. Hopefully the discussion below will help you to be more selective about the companies you purchase.
There are a tremendous amount of old and new companies in the mining sector that are trying to make it as this secular bull market in the metals continues to unfold. Because of the length of this bull market, which I see lasting for many years, a good portion of the real companies that have good properties and resources will be able to reach their goals and deliver shareholder value.
However, with that said, it is important to look for the companies that can perform the quickest. In other words, who can bring profitable production quickly to market?
There may be several good companies you could invest in, but we need to understand who is most likely to achieve success in the shortest period of time. Once you have a group of good companies to choose from, try and understand the time tables for bringing their projects to fruition.
Look for companies that can bring this kind of profitable production within the next two years. Whether it is uranium, copper, gold, silver, nickel, or some other metal, being selective in this manner will greatly help your portfolio to appreciate faster.
As an example of this, two companies that I had recommended in my newsletter, Viceroy Exploration and Silvercorp had very different time tables in performance. Both delivered shareholders 10X from where I recommended them, but the difference was Silvercorp was able to deliver this kind of return within 9 months of recommendation, while Viceroy took three and a half years.
Also, I would be more selective as to which metals I am willing to invest in with a greater portion of my portfolio in the precious metals. I consider the precious metals as gold, silver, platinum, palladium, and possibly uranium. Typically, uranium would be considered a base metal, but because of the unusual situation developing in uranium, I now consider it almost a precious metal. That is because supply disruptions look very possible in the uranium industry. I am extremely bullish on uranium and everyone should own a few good quality uranium stocks that have experienced management teams, and properties with real assets, not just moose pasture.
In addition, the WHO of a company is always much more important than WHAT the company has as far as properties go. I have talked about this point over and over. If you are looking at several good companies and don’t know who to pick, go with the management team that has the most experience in the metal they hope to find, develop or produce. This point cannot be overemphasized! The people who have done it before are most likely to do it again. Going over companies you are considering for purchase with a finer magnifying glass in this regard will help you be more selective and give you greater success.
The last point I will make before summarizing is to look for companies that can bring on some kind of revenue stream, or companies that have a joint venture model where others put money into the company for a percentage of the deal. This stops or slows shareholder dilution, and gives shareholders more kicks at the can. So many times there are good companies that have to raise more and more money to stay alive. As the number of shares start to balloon to higher levels with each financing, your upside potential continues to diminish. I would much rather put my money into someone who is making money or in someone that has a low burn rate, that is getting money from a joint venture situation.
While this is not a complete list of things to consider, I wanted to share these thoughts in the hopes of helping investors be more selective in their mining stock investment decisions. Timing of when to buy and at what price along with the share structure of a company will always be very important factors to consider in any investment buying decision, but have not being emphasized in this discussion.
With the bull market that is currently unfolding, even poor decisions may prove not to lose you money, but it may hurt to see how much more you could have made had you been a bit more selective up front as you considered which company(s) to invest in.
And as the peanut butter commercial I remember as a kid growing up always said…. Choosey Mothers choose JIF! Be CHOOSEY!
Until Next Time,