Revhead
27-02-2004, 01:50 PM
The following article, from kitco, gives good insights in investing with junior mining companies. I have posted the entire article in case it disappears from kitco at some latter stage.
HOW TO PROFIT ON THE ROAD TO FAILURE
By Dr. Richard S. Appel
February 26, 2004
www.financialinsights.org
An issue that is rarely mentioned in the junior exploration industry is the fact that few companies actually bring a mine into production. Some are successful in taking a discovery to the feasibility stage. Yet, rarely does a mineral deposit, even a substantial one, actually generate cash-flow let alone a profit.
A few years ago a very capable and successful geologist confided in me some very unusual information. He had worked a number of years for a major mining company, Cominco Ltd., which was since acquired by Tech Corporation. Cominco had worked in numerous countries during their decades of world-wide exploration and mining. I believe that it was during the early 1990's, when one of their directors desired to compare their successes with their failures. To this end, he ordered an evaluation of all projects in which Cominco expended a minimum of $1 million for exploration. For newcomers to the mineral exploration business a large number of potential targets are eliminated before the $250,000 level of expenditures is reached. This occurs after an increasing amount of information is gathered about the prospect. Invariably, what appeared to be highly prospective ground fails to meet the necessary criteria to continue. Industry wide, by the time that one million dollars is spent, still fewer projects remain which a company believes warrant further exploration. These are indeed the best of the best. Unfortunately, of these, few actually become mines.
In the case of the Cominco study, the researchers found over 2,000 projects in which in excess of $1 million had been expended. From this pool, the company only made six or seven mines. This gives you an idea of the actual likelihood of a junior company developing a project to the point where it is either bought out by a major company, or proceeds to production. However, it also gives one insight into the enormous profits that can be garnered if an investor picks one of the few companies that will reach the ultimate goal of mining success. After all, Cominco made substantial profits during its decades long existence, and greatly rewarded its shareholders in the process. This is enormously magnified if a junior is successful. In this instance, it will see its share price sky-rocket.
The reason that I am offering this information is not to frighten investors out of the junior exploration market. It is to help you better understand the industry and to make you aware that given all of the potential difficulties that must be dealt with, there are ways in which savvy investors can be quite successful and continually garner substantial profits.
I am in the forefront of those who desire to pick companies that have the qualities necessary to move a project to a profitable conclusion. I want to believe! I have been fortunate in the past in early recognizing a number of companies that actually moved from exploration to either a buy-out or to production. When this occurred, losses that I sustained from a number of companies that were not so fortunate, were not only compensated for but I was left with a substantial overall profit. However, for this discussion I want to describe how an investor who has the ability to control his normal greed, can not only position himself for a great wind-fall, that a truly successful junior company can generate, but also can make money with companies even if they are fated for failure.
The primary ingredient necessary for success in the junior exploration industry is the people! I will assume that those managing any company in which you choose to invest have been responsible for at minimum a major discovery or have actually built one or more mines. This immediately eliminates a vast number of ju
HOW TO PROFIT ON THE ROAD TO FAILURE
By Dr. Richard S. Appel
February 26, 2004
www.financialinsights.org
An issue that is rarely mentioned in the junior exploration industry is the fact that few companies actually bring a mine into production. Some are successful in taking a discovery to the feasibility stage. Yet, rarely does a mineral deposit, even a substantial one, actually generate cash-flow let alone a profit.
A few years ago a very capable and successful geologist confided in me some very unusual information. He had worked a number of years for a major mining company, Cominco Ltd., which was since acquired by Tech Corporation. Cominco had worked in numerous countries during their decades of world-wide exploration and mining. I believe that it was during the early 1990's, when one of their directors desired to compare their successes with their failures. To this end, he ordered an evaluation of all projects in which Cominco expended a minimum of $1 million for exploration. For newcomers to the mineral exploration business a large number of potential targets are eliminated before the $250,000 level of expenditures is reached. This occurs after an increasing amount of information is gathered about the prospect. Invariably, what appeared to be highly prospective ground fails to meet the necessary criteria to continue. Industry wide, by the time that one million dollars is spent, still fewer projects remain which a company believes warrant further exploration. These are indeed the best of the best. Unfortunately, of these, few actually become mines.
In the case of the Cominco study, the researchers found over 2,000 projects in which in excess of $1 million had been expended. From this pool, the company only made six or seven mines. This gives you an idea of the actual likelihood of a junior company developing a project to the point where it is either bought out by a major company, or proceeds to production. However, it also gives one insight into the enormous profits that can be garnered if an investor picks one of the few companies that will reach the ultimate goal of mining success. After all, Cominco made substantial profits during its decades long existence, and greatly rewarded its shareholders in the process. This is enormously magnified if a junior is successful. In this instance, it will see its share price sky-rocket.
The reason that I am offering this information is not to frighten investors out of the junior exploration market. It is to help you better understand the industry and to make you aware that given all of the potential difficulties that must be dealt with, there are ways in which savvy investors can be quite successful and continually garner substantial profits.
I am in the forefront of those who desire to pick companies that have the qualities necessary to move a project to a profitable conclusion. I want to believe! I have been fortunate in the past in early recognizing a number of companies that actually moved from exploration to either a buy-out or to production. When this occurred, losses that I sustained from a number of companies that were not so fortunate, were not only compensated for but I was left with a substantial overall profit. However, for this discussion I want to describe how an investor who has the ability to control his normal greed, can not only position himself for a great wind-fall, that a truly successful junior company can generate, but also can make money with companies even if they are fated for failure.
The primary ingredient necessary for success in the junior exploration industry is the people! I will assume that those managing any company in which you choose to invest have been responsible for at minimum a major discovery or have actually built one or more mines. This immediately eliminates a vast number of ju