What was it like, Dad?
Some perspectives on previous mining busts and booms.
"Insights into the Business of Exploration" panel July 2014
Insights into the Discovery Process
For a virtual letter titled Exploration Insights, we seem to devote an inordinate amount of text to mining, metallurgy, infrastructure, discounted cash flows, social license, permitting and, working capital. Not today. Today we want to consider minerals exploration, a scientific process that is largely intuitive. . .
Why Exploration Insights?
Exploration Insights offers the sophisticated speculator independent and unbiased analysis of the junior mining and exploration market. It is written and produced on a weekly basis by Brent Cook, a veteran economic geologist and mining stock analyst.
Successful speculation in minerals exploration requires an edge: the ability to differentiate between fact and fiction. Through Exploration Insights, Brent Cook provides you with rigorous factual analysis based on decades of industry-related experience in over 60 countries. These insights are supplemented by extensive on-site field evaluations of mineral properties. For an exploration speculator, there is no substitute for in-the-field experience to truly understand both the potential for a mineral discovery and the fatal flaws that make an economic discovery all but impossible.
From inception in February 2008 through year-end 2010, Exploration Insights' performance was strong, returning an average gain of 173% on the unsold positions and a gain of 319% on positions held at year-end. In 2011, the mining sector, and particularly the junior sector as measured by the Junior Gold Miners Index (GDXJ), collapsed, falling 26% in 2011, 23% in 2012, and a further 59% in 2013. By comparison, the Exploration Insights portfolio showed a loss of 2% in 2011, was down 14% in 2012, and off 18% in 2013.
For 2014, mining and metals were down again, with the Gold Bug Index (HUI) off ~18% (~38% from the 2014 high) and the S&P/TSX Global Mining Index (TXGM) down ~15% on the year (~26% from the 2014 high). For our purposes here at EI, the Van Ecke Junior Gold Index (GDXJ) is probably the closest proxy for our portfolio. The GDXJ also had another bad year: off ~25% and down ~45% from its July peak. Worse, the GDXJ has now fallen a remarkable 86% from its high set in early 2011.
The un-weighted performance of the Exploration Insights portfolio for 2014 was a positive 18%. Our strong performance reflects the sale of a few companies that had made metal discoveries prior to 2014, and a strong discipline to sell companies when results do not meet our investment thesis.
Our results and those of the GDXJ make two important points: 1.) Speculating in the junior miners is very volatile-- only invest with money you can afford to lose; and, 2.) Our relative “success” over time demonstrates the validity of a very cautious approach involving a very focused list of companies. It is, after all, my money being invested; therefore I do take buys and sells very seriously.
Subscriber question: “I subscribe to four other resource letters. What would I be getting from your newsletter that I may not be getting already?”
Brent’s reply: “What you get is a (generally) weekly letter written from the perspective of an economic geologist who has 30 years of exploration and mining industry experience in over 60 countries on real projects ranging from grassroots exploration to feasibility stage studies and bank audits. The past 17 years I have been working as an analyst and advisor to funds and high net worth individuals in addition to investing--essentially, turning rocks into money. The letter, then, is primarily about what I am doing with my money, and my only compensation comes from subscribers and the money I invest.
Exploration Insights is a straightforward letter focused on a few stocks in this very high risk/reward sector: exploration and mining. I provide you with information, both positive and negative, with which to make your investment decisions.”
For more information read the "User Manual" here.
Why invest in minerals exploration?
Virtually no other investment sector provides the opportunity for ten to hundred-fold share price increases on penny stock investments. The mining industry is extracting over 85 million ounces of gold, 800 million ounces of silver, 19 million tonnes of copper, 127 million pounds of uranium, etc., annually. These companies need to replace the depleted minerals with new viable discoveries. The problem is that economic mineral deposits are extremely rare, and finding one a very difficult and time consuming process; therefore, new mineral discoveries can be exceptionally valuable. When a junior exploration company makes a discovery, its share price and market capitalization increase dramatically. That early discovery, high reward, spot is where Exploration Insights is focused—that is our area of expertise and what we are really all about.
More specifically, the letter covers mining industry trends and provides detailed geological and economic evaluations of junior mining and exploration companies. Once a company makes it into our Exploration Insights portfolio we continue to provide updates and assess its progress, or lack thereof.
Subscribers will receive an email notifying them when a newsletter is posted, generally every week (travel schedule permitting). You will have the option of accessing the letter either by linking to the website or our mobile site using your username and password--be sure to save these.
For a good introduction to Brent and his investment strategy, click on the "Media" tab near the top of any page; this has a number of articles written by Brent, as well as recent and archived Interviews which will further your understanding of his investment and analysis paradigm.