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........