ASX Resource Explorers

[mickey2]

ASX Resource Explorers

Wonder if there are any views on whether ASX small/mini cap resource explorer companies follow some sort of natural cycle? So far, I haven’t been able to find anything on this.

I’m a newbie with a science background and I drive a desk for a job. For the past year or two I’ve been learning as much as I can from the Sharetrader forum exchanges and reading everything in the Papamoa public library from Darryl Guppy to Warren Buffet. In my spare time I’m quietly plodding away practising on Metastock and working on a personal trading and/or investing strategy.

Reason I’m interested is that there seem to be lots of small companies that womble off into the Outback or the Sahara or the mountains of PNG with a truck and a drill. A bit later they give a promo with maps and photos and test results showing resources of x million tons of ore at y grams per ton of Au, Ag, Cu, W, Sn, Co or whatever, all theoretically worth $z million. At this point the share price goes from 2c to 23c fairly quickly and Gazprom or Machine or JB hopefully buys another farm or tractor.

By the time I’ve caught up with this the sp is 42c and I’ve missed the boat.
Or have I?
The stuff in the ground (if the reports are accurate) is still worth $z million or +$100 per share before costs. What happens next? If the natural history is for the company to sell up to BHP or to develop and mine profitably then it could still be a good longer term buy down stream at 50c if the TA omens are good at the time.

Not sure if FA is helpful because of the limited history of these start-ups?

On the other hand if most such companies just fade into the sunset with the investors’ dollars then it’s not so much fun.

I guess the basic question is: what proportion of start-up resource companies actually end up either developing or selling the resource to the benefit of their shareholders?

That’s why I thought it would useful to see if anyone has any experience or opinions to share.

Any thoughts welcome, M2

Disclosure: watching WLF, ACY, ALK, BSM, EKM, FML, MGO

[shasta]

ASX Resource Explorers

Wonder if there are any views on whether ASX small/mini cap resource explorer companies follow some sort of natural cycle? So far, I haven’t been able to find anything on this.

Yes, the resource explorers usually spring up towards the end of the investment cycle when over confidence in the market prevails, & the number of IPO's starts surging.

I’m a newbie with a science background and I drive a desk for a job. For the past year or two I’ve been learning as much as I can from the Sharetrader forum exchanges and reading everything in the Papamoa public library from Darryl Guppy to Warren Buffet. In my spare time I’m quietly plodding away practising on Metastock and working on a personal trading and/or investing strategy.

Good on you for reading about BOTH TA & FA, this will provide you with the best results over time, well done for realising this.

Reason I’m interested is that there seem to be lots of small companies that womble off into the Outback or the Sahara or the mountains of PNG with a truck and a drill. A bit later they give a promo with maps and photos and test results showing resources of x million tons of ore at y grams per ton of Au, Ag, Cu, W, Sn, Co or whatever, all theoretically worth $z million. At this point the share price goes from 2c to 23c fairly quickly and Gazprom or Machine or JB hopefully buys another farm or tractor.

It depends on your own risk tolerance & investment style, those trading uisng TA will look for different indicators, volume etc to buy in, whereas those who invest (FA) will see a company as being undervalued, perhaps on an EV (Enterprise value) basis.

By the time I’ve caught up with this the sp is 42c and I’ve missed the boat.
Or have I?

You won't & can't catch every stock that runs, dont worry about it.

The stuff in the ground (if the reports are accurate ) is still worth $z million or +$100 per share before costs. What happens next? If the natural history is for the company to sell up to BHP or to develop and mine profitably then it could still be a good longer term buy down stream at 50c if the TA omens are good at the time.

Companies in the exploration stage, often get taken over when a particular metal is doing well & they have permits nearby to existing producers etc, if they look cheap enough then they usually are on someone's radar.
,
Not sure if FA is helpful because of the limited history of these start-ups?

Not necessarily true, i see you are following WLF, i have started a thread for them & have outlined there "In ground value", i believe that this shows they are undervalued, whether the market agrees with me, or not is irrelevant

On the other hand if most such companies just fade into the sunset with the investors’ dollars then it’s not so much fun.

Yes, a high number of exploration companies fade when there cash reserves burn up & they can't raise money in the markets, especially those without a large supportive shareholder on the register.

I guess the basic question is: what proportion of start-up resource companies actually end up either developing or selling the resource to the benefit of their shareholders?

At a wild guess i'd say less than 10% go on to become profitable producers (that figure also includes companies taken over before production)

That’s why I thought it would useful to see if anyone has any experience or opinions to share.

You are already reading the ST threads, there is a huge amount of free info provided by some very astute investors/traders on this site

Any thoughts welcome, M2

Disclosure: watching WLF, ACY, ALK, BSM, EKM, FML, MGO

Two threads for you to look at, with regards to valuing explorers are MLM & DGR - both of these companies have stakes in listed companies which are worth more than there market cap, this is not a recommendation to buy these, merely to see how i go about finding companies & working out which are undervalued (in my mind), often the market ignores these as they are too small, off the radar due to low liquidity, or too complex for people to work out

I already post on the WLF & BSM threads from what you are watching, & i know Steve Fleming has porvided some good info on the EKM thread.

If you have questions about a specific company raise them on the appropriate threads, & someone will answer them for you.

[mickey2]

Many thanks Shasta.
Much appreciated. You have answered well the things that were puzzling me. Must say that I find the forum much more user friendly than the library books! I hadn't recognised the concept of the investment cycle and new IPos - that helps to put a few things into perspective.

By the time I’ve caught up with this the sp is 42c and I’ve missed the boat.
Or have I?
You won't & can't catch every stock that runs, dont worry about it.

Thanks for this advice because I guess that's exactly what I was doing.

Also appreciate your comments about the role of FA and in ground value.

This forum is awesome.

M2

[shasta]

Many thanks Shasta.
Much appreciated. You have answered well the things that were puzzling me. Must say that I find the forum much more user friendly than the library books! I hadn't recognised the concept of the investment cycle and new IPos - that helps to put a few things into perspective.

By the time I’ve caught up with this the sp is 42c and I’ve missed the boat.
Or have I?
You won't & can't catch every stock that runs, dont worry about it.

Thanks for this advice because I guess that's exactly what I was doing.

Also appreciate your comments about the role of FA and in ground value.

This forum is awesome.

M2

It helped me when i first came here in 2004 & ive made alot of money from it ever since!

We are lucky to have a great mix of TA & FA posters

[JBmurc]

Talking about investment cycles I am bullish on major future 2012+ growth on jnr invested in large discoverys of -U308,Moly,Silver ----ACB,ZGM,SVL are three worth keeping on the watchlist
also aways keep an eye on sectors that are out of favour like say --Natural Gas in the US,canada plays like PSA,STX,AMU,MPO,SSN etc are trading cheaply even though some of these have very good oil production..
I've away been more of F/A bargain hunter than trend folllower on the micro level --macro wise best to follow the trend on most levels esp. if your a short term trader like myself

[Lego_Man]

I guess the basic question is: what proportion of start-up resource companies actually end up either developing or selling the resource to the benefit of their shareholders?

Quite a low %.

The key is using TA to be in when the music starts, and out when it stops.

Apart from the very few that you might have a very high conviction "buy and hold no matter what" view (eg PEN for me).

[STRAT]

Posted on AVB by Xerof
Of course very few make it.

[mickey2]

Many thanks for the posts, they are really helpful.

I had thought that short term traders would be less likely to be FA - so thanks for changing my thinking on that JB – and for sharing your thoughts on the wider considerations and investment cycles. It seems also to tie in well with Shasta’s comments. I’m haven’t been looked at energy stocks yet because I’ve been too hooked on the REEs and gold hype and will watch -U308,Moly,Silver ----ACB,ZGM,SVL with interest.

On the question of what proportion of start-up resource companies actually end up either developing or selling the resource to the benefit of their shareholders –the consensus seems to be not many! Thanks LM and Strat. I think Strat’s chart, courtesy of Xerof, supports LM’s advice that “The key is using TA to be in when the music starts, and out when it stops.”

Still got heaps to learn but it seems like more fun than my day job – and great to have this forum as a resource.

Regards M2

[shasta]

Many thanks for the posts, they are really helpful.

I had thought that short term traders would be less likely to be FA - so thanks for changing my thinking on that JB – and for sharing your thoughts on the wider considerations and investment cycles. It seems also to tie in well with Shasta’s comments. I’m haven’t been looked at energy stocks yet because I’ve been too hooked on the REEs and gold hype and will watch -U308,Moly,Silver ----ACB,ZGM,SVL with interest.

On the question of what proportion of start-up resource companies actually end up either developing or selling the resource to the benefit of their shareholders –the consensus seems to be not many! Thanks LM and Strat. I think Strat’s chart, courtesy of Xerof, supports LM’s advice that “The key is using TA to be in when the music starts, and out when it stops.”

Still got heaps to learn but it seems like more fun than my day job – and great to have this forum as a resource.

Regards M2

As you can see there are many different type of investors/traders on this site, which makes it such a good source of info.

My own style was developed by using bits of others, plus my own criteria, im always learning & refining "my system"

I like to find companies where the "sum-of-the-parts" is more than the market cap, or companies with low EV (Enterprise value), these tend to be smaller companies that get overlooked due to there size & liquidity, eventually the market catches on & they re-rate.

A recent example of this is SRZ (see thread)

[Xerof]

Another company that's displaying early signs of following the 'Classic Mining Company Model' - see post # 7 - is EKM (EKMO) which has just seen discovery # 1 followed by the attendant profit-taking. I wasn't in from the beginning, but got in earlier this week on the pull-back, in anticipation of the next major drilling campaign and subsequent (likely to be multi year) rally to point #3. Over this time it is likely to be diluted to hell as they raise capital (mainly from SI's, rather than us punters), but it's one that looks the goods for the long haul in my view. These don't appear very often, but providing they keep finding the stuff, I'll keep adding to the position, until the point where they announce taking it to production, then I'm out for the duration of development.

I'll report back in 2015........:D:D

[Stumpynuts]

Disclosure: watching WLF, ACY, ALK, BSM, EKM, FML, MGO

Hi Mickey,
EKM is definitely one worth watching. Check out the EKM thread in ASX

Also if you need any sort of advice, I can tell you what I know. I was in your shoes a few years ago.

[mickey2]

Thanks Shasta, Xerof and Stumpynuts.

I am following several companies from forum threads including EKM, MLM, DGR and downloading info about them from the asx.net.au site.

Must admit to being a bit overwhelmed by the sheer volume of information available.
I like the EKM September Melbourne presentation and looked at the November drill results for Central Bore and Justinian but not sure how to interpret the data when it says “6 metres @ 35g/t Au from 273 metres including 1 metre @ 182g/t Au.” Would welcome any pointers on how to understand assay reports like this.

I’ve opened files on my computer for 64 companies mentioned on the forum and am probably suffering from paralysis from analysis and I’m getting brain fog from trying to understand enough FA put them into to some sort of batting order for possible investment.

Especially appreciate the idea of looking at companies where the "sum-of-the-parts" is more than the market cap because that’s giving an understandable reason for investing (when the TA is OK). I’m not good enough or quick enough yet to identify these for myself (hope to be one day) as I still find the financial stuff in the annual reports hard going so it’s great to see these discussed on the forum.

I recognise that I’m basically quite gullible and easily taken in by all the resource company presentations and promotions. To encourage myself to acquire some degree of discipline I’m working on developing a personal trading framework.

Some of the general questions I’m asking myself are:
Is it better to stick to companies in one or two resources like gold or copper and concentrate on understanding those markets in some depth? Currently I can spend about 10 hours a week on the computer mostly weekends and evenings. I can find some time Mondays and Fridays to actually buy or sell shares.

Or is it better to take a wider view? I am impressed by the scope of knowledge of traders in this forum.

Some have a wide view like JB, “Talking about investment cycles I am bullish on major future 2012+ growth on jnr invested in large discoverys of -U308,Moly,Silver ----ACB,ZGM,SVL are three worth keeping on the watchlist also aways keep an eye on sectors that are out of favour like say --Natural Gas in the US,canada plays like PSA,STX,AMU,MPO,SSN etc are trading cheaply even though some of these have very good oil production.”

On other threads eg PDN some have said that maybe uranium will take over from rare earth elements as fashionable stocks. Is there a place for a thread to discuss the next new fashion in resource stocks?

I understand that it is up to me to do my own research and follow my own theories but would be interested in opinions on the merits or otherwise of “specialising.”

Related to this is how many companies to trade/invest in at any one time? I see from other threads that at least one guru has a couple of dozen or more. Again, I know this is an individual decision and there will be a wide spread but it would be instructive to know how others got started – test the water with a toe in or a big splash?

Thanks again
Mickey 2

[shasta]

Thanks Shasta, Xerof and Stumpynuts.

I am following several companies from forum threads including EKM, MLM, DGR and downloading info about them from the asx.net.au site.

Must admit to being a bit overwhelmed by the sheer volume of information available.
I like the EKM September Melbourne presentation and looked at the November drill results for Central Bore and Justinian but not sure how to interpret the data when it says “6 metres @ 35g/t Au from 273 metres including 1 metre @ 182g/t Au.” Would welcome any pointers on how to understand assay reports like this.

I’ve opened files on my computer for 64 companies mentioned on the forum and am probably suffering from paralysis from analysis and I’m getting brain fog from trying to understand enough FA put them into to some sort of batting order for possible investment.

Especially appreciate the idea of looking at companies where the "sum-of-the-parts" is more than the market cap because that’s giving an understandable reason for investing (when the TA is OK). I’m not good enough or quick enough yet to identify these for myself (hope to be one day) as I still find the financial stuff in the annual reports hard going so it’s great to see these discussed on the forum.

I recognise that I’m basically quite gullible and easily taken in by all the resource company presentations and promotions. To encourage myself to acquire some degree of discipline I’m working on developing a personal trading framework.

Some of the general questions I’m asking myself are:
Is it better to stick to companies in one or two resources like gold or copper and concentrate on understanding those markets in some depth? Currently I can spend about 10 hours a week on the computer mostly weekends and evenings. I can find some time Mondays and Fridays to actually buy or sell shares.

Or is it better to take a wider view? I am impressed by the scope of knowledge of traders in this forum.

Some have a wide view like JB, “Talking about investment cycles I am bullish on major future 2012+ growth on jnr invested in large discoverys of -U308,Moly,Silver ----ACB,ZGM,SVL are three worth keeping on the watchlist also aways keep an eye on sectors that are out of favour like say --Natural Gas in the US,canada plays like PSA,STX,AMU,MPO,SSN etc are trading cheaply even though some of these have very good oil production.”

On other threads eg PDN some have said that maybe uranium will take over from rare earth elements as fashionable stocks. Is there a place for a thread to discuss the next new fashion in resource stocks?

I understand that it is up to me to do my own research and follow my own theories but would be interested in opinions on the merits or otherwise of “specialising.”

Related to this is how many companies to trade/invest in at any one time? I see from other threads that at least one guru has a couple of dozen or more. Again, I know this is an individual decision and there will be a wide spread but it would be instructive to know how others got started – test the water with a toe in or a big splash?

Thanks again
Mickey 2

Mickey

I follow well over 100 companies across different sectors on the ASX, mostly resources & oil & gas companies, & i use the ASX website watchlists (free!) to monitor them.

I have a system that will allow a max of 5 companies, as im not a fan of over diversifying, & would rather buy more shares in something i already own (& know about) than keep increasing the number of companies held. (I currently hold no stocks due to personal circumstances).

The 5 stocks can change if/when i find another better & comparable stock, in which case the worst performer would be sold off (if holding the max 5)

My style is similar to JBMurc, we are fundamental investors, though he trades a small portion of his portfolio.

The day i find the companies i put in that share price & a nominal amount of shares, (i use 1000), this shows me which have run, remained static, or dropped off.

Personally i wouldnt be spending too much time on say Gold stocks, at the moment i'd only be buying gold producers, but i would favour companies with other projects in production (non gold), the likes of PNA, OZL, KZL, to a pure Goldie, like say DOM, RSG, TRY, GDO, as these have mostly followed the PoG upwards.

(The above companies are worth researching, but not recommendations, i do like GDO as a gold producer though)

I look for value first, & what it does secondary, i'm a fan of the "sum-of-the-parts" companies (MLM, DGR) or low EV style companies, especially those with large supportive shareholders & management with decent holdings (SRZ, SMD, PGS, KIS, SXG)

I am quite ok with medium risk stocks, as i am seeking 25-50% return on investment (or until what i deem "fair value")

The idea of finding sum-of-the-parts companies as a fundamental investor is to get in before the market wakes up & the T/A folk jump in

If you wish to go down the trading path, you have Phaedrus, Strat, Hoop, Trackers, UU, AA, Thumper & many others to learn from, i would certainly recomend downloading the Incredible Charts free version to play with

With regards to grades of rock chip samples, or assay results, these mean stuff all really until a company has a JORC resource, until then they are all fairly high risk exploration companies (plenty of money to be made off them if ya know ya stuff), if a company has a decent exploration budget for an active drilling programme then i might be interested in high grade samples.

Just a case of sticking to what you know.

You need to decide what your risk tolerence is, if you will need your investment money back out for personal expenses, are you prepared to buy & hold, or do you want to jump on the "next hot thing". I would suggest 10 hours a week (if its mostly after work & out of trading hours), then trading may require more time spent, until you have a chart filtering programme.

I dont consider myself competent enough to trade exclusively, i have done so in the past with mixed results, most profitable trades were from "special situations", i do try to use charts when comparing like companies, & do use candlesticks when viewing charts. (Direct Broking have free to view charts)

[mickey2]

Hi Shasta

Thanks for your post. Lots of really helpful ideas to help me get my thoughts into perspective. Wish I had more time to spend on the sharemarket! Think you might be right about me needing more time to trade as opposed to actively investing fundamentally. I will attempt to whittle my initial selection down to four or five that I can watch in greater detail and spend more time learning the fundamentals.
Regards
M2

[shasta]

Hi Shasta

Thanks for your post. Lots of really helpful ideas to help me get my thoughts into perspective. Wish I had more time to spend on the sharemarket! Think you might be right about me needing more time to trade as opposed to actively investing fundamentally. I will attempt to whittle my initial selection down to four or five that I can watch in greater detail and spend more time learning the fundamentals.
Regards
M2

Costs nothing to watch, research & follow stocks for a while ;)

If there are sectors you would like some companies to look into further, i can help you

[Stumpynuts]

Not sure how to interpret the data when it says “6 metres @ 35g/t Au from 273 metres including 1 metre @ 182g/t Au.” Would welcome any pointers on how to understand assay reports like this.


Okay, to interpret something like this - 6 metres @ 35g/t Au from 273 metres including 1 metre @ 182g/t Au
Basically for every tonne of earth/dirt was to be dug up, there would be on average 35 grams of gold that would be able to be extracted.
Of those 6 metres drilled, 1 metre contained 182 grams per tonne.
And these findings from the 6 metres of drilling results would be from 273 metres down in the ground.
(At least this is how I have been shown to interpret gold drilling results)

Naturally the higher the grams per tonne, the more gold in a smaller volume of space, which in turn means higher value and you would hope less cost to extract - try to think of it as having more beans and less sauce in a tin of baked beans

P.S, in the grand scheme of things I'm still a relative newb trader myself (only 5-6 years)
There's plenty more for you to learn...... You'll most likely learn more from your trading failures than successes.

[mickey2]

Costs nothing to watch, research & follow stocks for a while ;)

If there are sectors you would like some companies to look into further, i can help you

Thanks Shasta, might well take you up on that, much appreciated.

Mickey2

[mickey2]

Okay, to interpret something like this - 6 metres @ 35g/t Au from 273 metres including 1 metre @ 182g/t Au
Basically for every tonne of earth/dirt was to be dug up, there would be on average 35 grams of gold that would be able to be extracted.
Of those 6 metres drilled, 1 metre contained 182 grams per tonne.
And these findings from the 6 metres of drilling results would be from 273 metres down in the ground.
(At least this is how I have been shown to interpret gold drilling results)

Naturally the higher the grams per tonne, the more gold in a smaller volume of space, which in turn means higher value and you would hope less cost to extract - try to think of it as having more beans and less sauce in a tin of baked beans

P.S, in the grand scheme of things I'm still a relative newb trader myself (only 5-6 years)
There's plenty more for you to learn...... You'll most likely learn more from your trading failures than successes.

Hi Stumpynuts
Many thanks, it makes more sense now!
Mickey2

[shasta]

Thanks Shasta, might well take you up on that, much appreciated.

Mickey2

No worries. Sharetrader is about helping each other ;)

[Stumpynuts]

Hi Stumpynuts
Many thanks, it makes more sense now!
Mickey2


Here's some info about cut-off grades as well, if it helps

http://www.encyclopedia.com/doc/1O13-cutoffgrade.html

[mickey2]

Cheers Stumpynuts. Also following up on EKM or GOR.
Regards
Mickey

[Waiuta]

Can anyone please tell me what PPL stands for in respect of oil/gas exploration areas? I assume the 'L' stands for licence but the other two have got me stumped. With the best filters in the world I just can't seem to find it.