Mining the Market

Mining the Market

I am bemused by the visceral reaction I get from so many people when you mention the mining sector. There is a massive disconnect from the reality of that market, the mainstream media positioning of it. It usually begins with a sour face and some reference to it being horrible for the environment or mean to third world countries. I do not blame people for this. They are only going by far-left news media publications. This is not a fault of the investor. It is a fault of the machine, and the media that looks for sensational stories, fads and entertainment for advertising dollars rather than solid, critical analysis. This is not an article on the obvious bias and propaganda being spun by most North American media conglomerates, who tailor the exact same message through all their affiliates, subsidiaries and connected associates. It is a look at why if you are interested in the future, not only of our civilization, but of the planet then you need to get active in mining. It is to position people on the right side of the debate, and on the right side of the future, of environmentalism and conservation. You can do that by bringing money to those companies providing all the material required for Greentech, Energy, Electric vehicle Markets, batteries and computing. Mining is the foundation of all these sectors. We must not be passive signalling sadness at some sensational piece written about a third world country. If you love the environment then become part of the conversation and move into a remarkably undervalues sector that provides all your electronics, and holds the key to cryptocurrency, nanotechnology, quantum computing, even your sunglasses. Take some time and join me in the conversation and let us walk together through the facts and leave the personal narrative, and dramatic one-off stories. This entire reality is about probability and potentiality not stories. Let’s frame the future and work with those that provide the building blocks for that future. Let’s develop better energy storage. Let us work on efficient green technology. Let’s save the planet!

There is an arbitrage opportunity in the market right now for producers in the mining space, which are particularly undervalued in relation to soaring commodity prices has been ignored for almost 6 years. I am always bemused when people react so negatively about mining; yet, have no idea of the importance of its production in their daily life. This foundational sector makes all technology possible, and without mining, the Greentech revolution could never take place. From an investment standpoint, mining stocks remain unloved for several reasons: Regulation, passive investing, false and fragile risk mitigation and mainstream media focused on weed stocks, crypto-currency and FAANG stocks. Despite all these considerations, the main reason can be summed up as passivity and lack of responsibility for one’s own portfolio. There is a need for people to take direct interest in the markets again and I am not talking about stocks that are so overvalued that they will never make money. I am talking about real companies that produce t commodities every nation and country needs, and many are starting to hoard.

This is a brief introduction into the historic cycle or pattern visually represented in a graph explain the life cycle of a mine. If you are looking to get ahead of the curve on an idea, then the mining sector is that consideration. Of course, I spend all day looking at data, so I am thoroughly convinced. My job is to highlight a couple key reasons why retail investors need to take responsibility from their passively invested portfolios and take some risk with junior mining. This is a strategy for everyone who can allocate funds through active portfolio management. If you have 5% of your portfolio available for high risk, then you need to be open to a new idea that is not being presented to you by passive funds.

It is vital to understand where we are in this curve for each company and what their motivation is. Companies are clear when they state their goals. Exploration companies use various vehicles and financial instrument to maximize this first part of the graph in; Know Where you are on the Graph’. They are focused on concept, data accumulation and then disseminating news to the market ideally reaching milestones, achieving benchmarks and experiencing incredible growth on route to discovery. As data is released and accumulated suggesting discovery or value the stock works its way up the curve. Determining what the actual value of the company gets closer but still speculative.

People take advantage of this in the market and often sell into this curve giving up possible future gains for:

  1. Exploration funding. This is speculative and the highest risk for investing. Taking this risk means the upside potential is outstanding. This is a speculative period provides opportunities where deciphering news and results is just as much as an art as science. There is some data, comparable, models and possibilities, but the key share price driver is blue-sky potential.
  2. Drilling programs. This is the data accumulation phase and it means narrowing in on specific targets and finding more clues, or anomalies that suggest a discovery. This would include the PEA (Preliminary Economic Assessment) or to discover whether the deposit discovered is economic, companies generally complete several technical studies. These studies include preliminary economic assessments, along with prefeasibility and feasibility studies. All three analyze and assess the same geological, engineering and economic factors, but the level of detail and precision is significantly different.
  3. Construction. The stock price cools significantly as it takes years to build a mine and the entire infrastructure required.
  4. Production. This final phase typically sees a full revaluation of the company’s mineral assets, but to us, it is the least interesting phase as all speculative, blue-sky potential has disappeared in years past. Our focus is to look at project generators who market themselves to be bought out by producers.

The above chart shows the periods of time when exploration occurred and when production and efficiencies where focused. Of course, these can overlap but there is a clear pattern.

We have gone through the trough in our cycle, and though we are staring at an uncertain economic, stock market and debt market future, it is possible the FED can keep just printing money indefinitely. Throughout history people have pointed out that we do not have enough to pay off debts, but we still manage to push it forward. Regardless, smart money is already starting to move into this sector. Producers are looking for quality projects in safe jurisdictions. Much of the readily available projects have been taken off the market but there are always more discoveries to be found, and there are more still in places where ice has abated to reveal possibilities not previously considered.

This curve is a good reference point because it alludes to when you should consider selling. Is the company a project generator in which they will sell to a producer? Do they want to build a mine and produce? If so, you must understand that the skill set for discovering a mine is different from operating one. The contracts, pricing and finances become exacting. Building infrastructure, working with the government, project planning and negotiating with vendors whether that be for shipping material, smelting or any other production issue. An entirely different ball game from drilling to find new deposits.

It is my conclusion that we have some troubling news for some sectors in the market but in such times, there is always a flight to safety. There is always a flight of capital and some will come to mining. There are several companies and plays on the horizon that will be newsworthy and will garner some attention from big funds and institutions. Players like … are building capital structures to take advantage of the mispricing of the market in mining. There is capital flowing into juniors, despite it being a tough market. And they are exploring in a big way.

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