The most exciting time to be a mining stock investor
By James Fraser
The most exciting time to be a mining stock investor is when a exploration company is drilling and awaiting assays.
The potential for life-changing returns is possible.
Very few sectors offer the potential return of a mining stock in the discovery/speculation phase.
Sprott’s President and CEO, Rick Rule says, “Speculation is where the big money is made; however, that is where the big risks are.”
It is said that roughly 1 in 3,000 anomalies actually get to the stage of an economic mineral deposit.
Mineral deposits are rare and because of this, they become extremely valuable.This leads to the potential for a 2X, 5X, 10X, 50X, or even the elusive 100 bagger.
If the drill bit hits significant mineralization, it could be the start of huge gains.
NexGen Energy serves as a good example from the past few years. NexGen Energy’s stock has gone up eight times since the initial discovery was made, based on excellent uranium drill holes in Saskatchewan. This has occurred even in a depressed uranium market.
Finding a mineral deposit can be similar to putting together a complex puzzle.
The first step in a company’s process is staking or acquiring a project. At this stage, the company likely has a thesis for a mineral deposit based on geological structures (type or rocks, faults etc.)
The second step involves boots on the ground work and may include sampling (soil and rock), geophysical surveys, and mapping. Typically, the results from this work will have little to no effect on the share price. The goal here is to find any potential drill targets.
The third step and the most exciting for shareholders is drilling. A drill rig is referred to in the industry as the “truth machine” because it reveals if any mineralization lies below the surface. Good drill holes lead to significant share price appreciation.
If future drill holes continue to hit mineralization and the project becomes de-risked a takeover from a bigger company is likely.
With the rise in metal prices in 2016, companies have been raising money and spending funds drilling. Summer and fall drilling programs are finishing up now and have the labs much busier than the last couple years. Majors have also been keeping the labs busy with drilling to replace reserves/resources for year-end updates. Busy labs are causing some delays for companies and investors.
In regards to considering investments in mining, Sprott’s Investment Executive Steve Todoruk says, “I believe that one of the most exciting — and potentially rewarding — ways to invest in the mining sector is through shares of small companies that have just announced a new, potentially large, mineral discovery.”
Below are three exploration companies that are currently awaiting assays results and deserve to be on your investing radar.
Fiore Exploration (F:TSXV) – Fiore started an 8,000-metre drill program at the Pampas El Peñon project in Chile on October 27th. Drilling is targeting high grade epithermal gold similar to the neighbouring Pampas Augusta Victoria zone at Yamana Gold’s flagship El Peñon Mine. El Peñon is a underground mine which has been producing since 2000. Production in 2015 was 227,288 ounces of gold and 7.7 million ounces of silver. Geology appears similar to Yamana’s with arsenic-antimony anomalies and rhyolite domes. The drill bit will see if high grade veins can be found.Proven and Probable reserves at El Penon show a grade of 4.98 g/t.Investors evaluating Fiore drill results will be looking for similar grades.To view the latest Fiore presentation click here.
Prosper Gold (PGX:TSXV – Prosper is in the midst of an up to 20,000-metre drill program at the Ashley gold project in Ontario. The initial plan was for 7,500 metres but Prosper Gold raised more money and increased the program on November 1st. At Ashley, Prosper is testing high-grade and bulk tonnage targets under the guidance of geologist Dirk Tempelman-Kluit. Mr. Tempelman-Kluit is credited with the discovery of the Blackwater deposit which is now over 10 million ounces and owned by New Gold. The latest company presentation for investors can be found here.
Redstar Gold (RGC:TSXV) – The team at Redstar is eagerly awaiting drill results from the high-grade Unga project in Alaska. Results from the 7-hole program are expected any day now. The team was encouraged at the look for the core before it went off to the lab. The drill holes intersected the targeted structure, which in previous programs has hit high-grade mineralization. Investors will want to see high-grade intersections and continuity in results in between drill holes. Redstar has a useful presentation here.
When speculating in exploration stocks, you want to increase your odds of success. Each of these three companies has attributes that could help increase the odds of success.Some of these odd enhancers are:
- Management – One of the most important aspects of investing in exploration companies is management. Each of these three companies has a management team with a proven track record and have made discoveries in the past. Another positive sign is insider ownership in all three companies is high.
- Cash – Junior mining exploration companies are serial diluters as they have no cash flow. Fiore and Redstar are both companies which will still have significant cash in the bank at the end of drilling and will not need to go back to the market.
- Geology – All three companies are drilling in close proximity to where mineralization has been found before.