Mining markets are at a bottom. That much is clear.
There is also general agreement that commodity prices are low and share prices have been hammered.
For anyone who believes what goes down must at some point go back up – and, given that the products of mining are literally the backbone of society, the eventual upcycle is inevitable – it means there are resource stocks with incredible upside potential available right now at low, low prices.
But you have to pick right. The bear market has quieted some of the noise but there are still hundreds of exploration companies telling interesting tales. And a sneaky logic prevails: every company that's survived this long in the bear market must offer value and potential, right?
Perhaps – but the survivors still cover a wide range of quality. Some survived by raising very cheap money and diluting their share count. Some had to offer cheap, long-life warrants that could cap price gains. Some have no momentum, having not really done any work for several seasons. Some high-graded their mine reserves and now face rising production costs.
There are many, many ways companies either helped or hurt their long-term prospects during the bear market.
At the end of the day, figuring out which way a company went comes down to one question: management.
No matter how great a project, the people steering the ship determine whether the company will succeed or fail. Good people do not guarantee success, but they increase the odds significantly. Incompetence, arrogance, inexperience, apathy, and carelessness do guarantee failure.
This lesson doesn't just apply to bear markets. Bad management derails companies in good markets. There are egregious examples, like Barrick spending $7.3 billion to buy Equinox Minerals in what remains a failed bid to enter into the copper market or Teck Resources spending $14 billion on coal assets at the peak of the coal market, a move that almost sank the company.
Less splashy examples can be just as damaging for shareholders, like overspending on overhead, signing weak property or debt deals that come back to bite, or letting personal affiliations or benefits bias management decisions.
Then there are all the companies that mostly rise and fall with the mining markets because management can't manage to differentiate themselves from the pack. These teams aren't bad; they are just not very good.
To survive in this market – and to thrive when markets are good – companies need proactive, creative, cautious, connected, hardworking, and experienced management.
Running a junior mining company in a bear market is a tough slog. Layoffs mean everyone has more on their plate. It's a struggle to raise money on reasonable terms. It's even harder to remain optimistic, especially when the market ignores or even punishes hard-fought good news announcements.
But there are management teams making something out of almost nothing. These are the companies that will rise first and farthest when the markets again start to move.
How to identify these groups? First, follow success. A team that has seen success once is likely to see it again. Some brokers and investors select stocks primarily by following people or groups who have paid them back handsomely before – and it's a very legitimate strategy.
Second, listen to advise from those who know the people in question. Nothing informs an opinion about a person or team of people better than the combination of face time and knowledge of their backgrounds.
Third, finagle your own face time. The presidents and CEOs of exploration and mining companies are accessible, if you watch for opportunities, and a personal interaction can give you confidence your investment is being well managed or concern enough that you realize it's time to sell.
If you will be in Vancouver on May 30th, there is an opportunity to take advantage of all these tactics in one swoop. The opportunity is the Metals Investor Forum, a one-day event taking place at the Pan Pacific Hotel.
Four newsletter writers will host the event: Eric Coffin of HRA Advisories, John Kaiser of Kaiser Research Online, Gwen Preston of Resource Maven and Brien Lundin of Gold Newsletter. Each writer invited his or her top-pick companies to present. Long, catered coffee and lunch breaks provide lots of time for investors and management teams to talk. It is just the kind of face time opportunity that can spark a new investment idea or solidify a current one.
The companies presenting are highly screened. To be invited a company has to have earned an active recommendation from Eric, Brien, John, or Gwen. This is a highly vetted group of companies, the kind that will outperform in the coming market run.
A limited number of seats are available to non-subscribers. If you are interested in attending the Metals Investor Forum, click HERE to reserve a seat today.
In her letter, Resource Maven explains what she is buying and selling, and why. Maven has bought into several of the markets best - performing stocks well ahead of the curve. She regularly identifies exciting new exploration opportunities and manages the inherent risk by selling some into speculative gains. And the mine builder and operator stocks that form the basis of the portfolio give strong, ongoing leverage to the rising prices of gold and silver. She has your precious metal bases covered.
You were 100% right in todays prediction. I bought in at the times you said, in the method you said (Twice) I have enjoyed the gains!
Thank you for your help and guidance as always.
"Gwen - I just analyzed our returns for the past month. We had a 36.7% return on our portfolio in one month! Thank you so much for your excellent, thoughtful and timely guidance. 12 of the 18 stocks in my portfolio were recommended by you. 4 were recommended by other MIF letter writers and 1 each by Eric Sprott and Rick Rule. Yes it was a good month for precious metals - Gold was up $50 and Silver $3.90 - but “our" portfolio performance more than doubled the 16% of the GDXJ"