By William (Bill) Howald
I think it was the latter as that is how I worked my way through university.
I think what she was really trying to tell you was that throughout your endeavors you should have a way, or a measuring stick to predict winners, and stay away from the opposite of winners. So lets look at what I call the 5 Ps that every successful junior mining company should have to be a winner. Normally, juniors do not start out with a mine. They must find it, and it takes a special bread of individual and company management to walk into work each day only to find out they are wrong, they blew it (If they were right every time, gold would be $1.20 a sack rather than $1,200 per ounce). The best laid plans of mice and men, every day, over and over, like the movie “Groundhog Day.” It’s a wonder that more geologists are not committed.
See related: Behind the Iron (Gold, Copper, Nickel) Curtain
Okay, back to the 5Ps. The 5Ps are People, Politics, Project, Price and wait for it - Phinancing. All companies are about People – you want to know the people running the company. People have likes and dislikes (even before social media made it a verb), but the best companies have a professional, ethical and results driven way of doing business. They are driven to succeed. You want to align yourself with those people and their companies that demand excellence, build unbelievable teams, take responsibility and treat people, well, like people. In my shop, we express this way – it must be real, it must be fun, and no a-holes!
Politics is the next item to look for. We call it political or jurisdictional risk. Where is the project located and is it in a region or country with a mining history, a mining law, the rule of law, a supportive government, and does it have a process for an exploration project to become a mine? These are all good questions to ask yourself, but more importantly, find out the answer. As an example, a major mining company purchased a quality exploration asset in Ecuador. The company paid $1 Billion - the B is not a typo - for the project and had invested additional exploration and development funds. At the time, Ecuador had a pretty good mining law in place, but the Ecuadorian government changed and instituted a populous agenda. They decided to revise the mining law to include a 70% windfall tax. The project was dead, and the company took a huge write down.
Political risk does matter. If the underlying political trajectory is negative (like Ecuador), it’s probably going to have a negative impact on the project and there are many other places with bad politics. The Fraser Institute publishes an annual list of the best and worst place for mining – read it. From the 2012/2013 report, the top five areas, regions or countries with good policy and mineral potential are Yukon, Finland, Nevada, Sweden, and Western Australia. I am especially fond of Nevada.
Click here for the 2012/2013 report: http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/mining-survey-2012-2013.pdf
Good people find good Projects. That’s why people are important, and you want to find companies with an excellent management team and a track record of success. There are management groups that do it over and over again. The rule is bet on the jockey, not the horse. That’s why project is the third P and not the second.
I look at the mining sector these days and find it is filled with tremendous opportunity for value. Major, mid-tier and junior mining stocks are at all-time lows. Using the People, Place and Project rule will separate the wheat from the chaff and get you in at a good Price. The mining sector is cyclical, and we are closer to the bottom than the top of the cycle.
Last but not least is Phinancing. The bear market in metals has been in since 2011 and I can’t wait for it to go back into hibernation. Weekly, if not daily, we try to call the bottom with no avail. Junior companies with no funds and no chance of financing will likely disappear. At one point, there were approximately 2,500 junior companies listed on the TSX and over 900 of them had less than $100,000 in the kitty. Many have started to lock the doors, turn off the lights, and start a marijuana company! The ones with money and management teams that can finance will tend to make it through these harsh times. Look at company’s financials and find out when they last raised cash and what is their monthly burn rate. Make a list of those with cash and those without. The companies with cash and or cash flow will be ready when the market turns because they are Quality.
Editor’s note: William (Bill) Howald is the co-founder of Rye Patch Gold Corp, a TSX listed company. Prior to joining Rye Patch, he was General Manager of Exploration, United States and Latin America, for Placer Dome Inc. During his tenure at Placer Dome, Mr. Howald was an integral part of the teams that delivered over 100Mozs of gold resources to the Placer portfolio. A number of these resources are now being mined or are at the feasibility stage and heading for a production decision. Mr. Howald has 30 years in the international gold exploration and mining industry gained primarily in Nevada, Mexico, and Central and South America.
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