If You Are Not Familiar With The Resource Sector,
Rely On Someone Who Is.
Only a tiny fraction, (less than 5%), of junior resource companies deliver 90% of the returns.
Access to specialized knowledge is imperative if you want to be successful in the resource sector.
The lure of spectacular capital gains is intoxicating. I was drawn to the investment side of the resource sector after having witnessed some incredible stock gains – specifically, Aber Resources Ltd., Daivik diamond discovery (now Canada’s second largest diamond mine) and Diamond Fields International Ltd. Voisey’s Bay nickel discovery (now a massive nickel mine in Labrador, Canada).
After its initial diamond discovery in 1993 Aber Resources stock went from about $3 to a high of $28 in 1997and is now trading as Harry Winston Diamonds at $16 per share.
Diamond Fields Resources stock went from about $4 prior to its big nickel discovery in 1994 to $160 per share (pre-split valuation) when it was taken over by Inco (now Brazilian-owned Vale) for $4.3 billion in 1996.
In my career as a geologist, mining journalist and analyst, identifying mining success stories has been my job. In late 2003 I recognized the potential of Aurelian Resources project in Ecuador, while on a site visit. (Northern Miner coverage 2003-12-29 “Aurelian cuts high grades in Ecuador”)
In 2006, shares of Aurelian Resources Inc. soared from just $0.89 to highs of near $40 on its high-grade gold discovery in Ecuador. Kinross bought the company for $1.2 billion in 2008.
Finding Reward in Risk and Volatility
I invested early on in Aurelian and other stock successes like Tenke Mining, Silvercorp, Novagold, Canplats and a host of others and I continue to look for opportunities like these.
However, the reality is that the majority of junior exploration companies never find an economic deposit and even fewer ever graduate from explorer to producer.
Fortunately, as investors we are not limited to just betting on new discoveries to make money in the resource sector. That’s the beauty of a speculative market – there are numerous opportunities to make handsome profits if you know how to identify best potential candidates. The challenge is to find companies that have quality assets that are currently undervalued in the market.
There are thousands of exploration companies out there vying for your dollar. Not one of them will tell you they have a mediocre project that has little or no upside potential. Sorting out the wheat from the chaff is a full time job. Through Resource Stock Picks I would like to share my knowledge with you.
Investing Strategy
The art to making consistent gains in the resource market is through due diligence, risk assessment and a realistic selling strategy. A mentor of mine always said “You can never lose money taking a profit.” That was his way of saying “don’t get greedy waiting for the big win.” It’s all too easy to ride a stock up and all the way back down again.
Choose a basket of quality companies that have the potential provide a healthy capital gain and take some profits when you can.
Due to the risk associated with the resource sector I look for companies that have the best potential to at least double their value based on their current geological assets. And of course, some also show the potential to make that big discovery that makes shareholders grin from ear to ear.
I identify companies that have a number of key factors that could propel them forward.
These factors include:
- An undervalued project
- Good management
- A strong capital structure
- Quality promotion
- Strong shareholders
- Cash in the bank or access to cash through shareholder and broker support
Identifying companies that are truly undervalued in the market can be tricky since most companies base their upside valuation on speculation. This is where relying on a geologist comes in handy. A geoscientist like myself can evaluate the geologic potential and provide the investor with a risk assessment.
My job is to search for undervalued companies that have the potential for significant capital gains. Your job is to make the best choices you can to improve your odds of success.
Pick the company or companies that make the most sense to you.
Performing Due Diligence
I’ve created a Due Diligence checklist that can help you narrow down your options. If you have the time and want to research your favourite resource companies but don’t know what to look for, my website can be of assistance.
Check Out Resource Stock Picks
View the stocks I currently am bullish on and receive updates when there is significant news. I update the site whenever I come across new and exciting opportunities.
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