A Fighting Chance with Jr. Mining Shares
A money manager, appearing on Bloomberg television the other day, was asked where his clientele wanted to put their money. The manager emphasized that his customers are younger people. They are interested in stocks, he said. When asked if any thought about in diversifying in gold, he said, ‘No, none of my clients are interested in gold.” They might consider Bitcoin, he said, but not gold.
Perhaps successful millennials and younger give the ancient metal no respect, but at least one investing legend claims the yellow metal “has everything going for it.” Paul Tudor Jones told Bloomberg, gold is his favorite trade in the next 12 to 24 months is gold, adding that if the price can break through $1,400 it will push to $1,700 an ounce "rather quickly."
Long-suffering and cynical gold bugs might say, “yeah, that’s a big ‘if.’” While the White House crows about how wonderful the economy is, storm clouds are gathering and Jerome Powell’s Fed appears to be ready to drop-kick interest rates as the Tweeter-in-Chief threatens tariffs against friends and foes alike at all hours of the day and night. In Jones’s view,
We’ve had 75 years of expanding globalization and trade… and now all of a sudden it’s stopped,” he said. “That would make one think that it’s possible we go into a recession; it would make one think that rates in the United States go back down to the zero bound level; gold in that situation is going to scream. [Gold] will be the antidote for people with equity portfolios.
Parking shiny coins in a safe deposit box may not provide the excitement that FAANG investors are used to. For those with a strong stomach speculating in junior mining shares provides maximum leverage to gold’s price--up and down. For the past decade, it’s been mostly down and painful.
You can leave Graham and Dodd’s “The Intelligent Investor” to continue collecting dust or propping a door open somewhere. Navigating the world of junior mining shares requires learning a new vocabulary. When I asked my broker to recommend a book to help me understand miner news releases, PEAs and such, he laughed. “That book hasn’t been written,” he told me snidely. I couldn’t read what he’s learned from decades in the business.
Fair enough. However, I did find a mining book word reading. “Mining Stocks Investor Guide: A Guide To Investing In Mining Companies” penned by James Fraser and Kevin Pederson provides value for beginners and the experienced alike. After a warning and a disclaimer Peter Leeds explains in the forward, “Mining stocks represent one of the last ‘unknown’ frontiers in the capital markets. Even seasoned investors feel they are speaking a different language once they enter the world of assays, geophysics, and kimberlite.”
Fraser and Pederson write in a clear, punchy style and most importantly, don’t stray too far out into the geological weeds. However, readers “must realize that junior mining stocks are the riskiest investment of any mining stock.” I would correct the authors and not refer to putting money in junior mining shares as “investment.” This tiny sliver of the financial markets universe should only be considered speculation, at best, degenerate gambling, at worst. Junior mining and exploration company shares are not for widows and orphans.
The authors say, more than once, the odds of a discovery turning into a producing mine are 1000 to 1. I’ve heard the number is 3,000 to 1. And discoveries take an excruciating amount of time to “pan out” or not. Property acquisition, geology, drilling, feasibility, permitting, mine development, production, and so on will take years or maybe decades. If you lack patience, going to the track and betting the ponies provides less risk and more action. Plus, you’ll likely go broke at a slower pace.
If you’re looking to punt on junior mining shares, success is all about drilling, and pulling high grade drill hole(s). What’s good, bad, or ugly in drill results, the authors provide some rules of thumb. No junior mining management will do a news release saying they pulled a duster, admitting they wasted investor money. Mining executives live off of investor cash, so news releases can be, shall we say, deceiving, so the company always provides enough hope to keep investor money coming. Mining cash from investors’s pockets takes precedence over pulling minerals from the ground. The authors say it all,
When a prospector discovers possible mineralization and indications are good for a mineral resource, then geologists, mining experts and other expensive personnel study the initial results and mappings for months, sometimes years, (getting paid every day by the investor) before they drill a single hole.
Grade mineralization is one thing, continuity and depth are just as important. Chapter 10.2 “Drill Results--Mini Case Study” is especially instructive in determining individual rock values as is Chapter 11.1 “Back of the Envelope” where the authors use deposit information to determine a mine’s value per share.
If the analysis of junior mining shares wasn’t daunting enough, in Chapter 16.3 “You Don’t Know Jack” the authors explain, “Unbeknown to most investors, they are on the outside looking in, even if they think they have tickets to the party.” To put it simply, as an ordinary investor, you are buying shares from an insider who has already made the easy money.
“Mining Stocks Investor Guide” is a bit dated (2012) and only available on Kindle. This is a book, if you dare, that will be referred to again and again, and would be handy to have in paper and ink.
However, it’s better than no book at all, or simply trusting your broker.