Coming off the back of the COVID-19 pandemic, the prices of many commodities have seen positive performances. However, that hasn’t translated to mining companies, especially those in the junior mining space.
Historically, the resource sector has seen its share of booms, but it also tends to take a back seat to high profile sectors like tech.
The Mining Share panel at this year’s New Orleans Investment conference discussed where the market is coming from over the past decade and looked to what the future might hold for investment in the mining sector.
Helmed by Rick Rule, the founder of Sprott, the panel consisted of Tavi Costa, partner and macro strategist at Crescat Capital; Gwen Preston, founder of the Maven Letter; Brien Lundin, president of Jefferson Financial; Brent Cook, founder of Exploration Insights; and Jeff Phillips, natural resource investment advisor.
Does anyone care?
The panel opened with a question from Rick Rule: “Is there a malaise in the valuation of junior mining shares?”
There was overall agreement from the panel that the sector was in a prolonged stagnation and, though reasons sometimes differed, the consensus was that investors were indifferent to the market.
“Junior mining used to be an important playground for speculative investors, but there has been a proliferation of other speculative opportunities,” Gwen Preston noted. She singled out the tech industry as a place to which investors have moved over the past decade, citing artificial intelligence, cryptocurrencies and ETFs as pulling speculators away from the mining sector.
The sentiment that junior miners haven’t been able to generate the same kind of excitement as the tech sector was also echoed by the panel.
“I think the market — since the mid 90s, when I was fortunate enough to get involved with it — is really, most of the time, kind of boring,” Jeff Phillips said. “… The resource market is always boring. We’re always trying to take your money, and you’ve gotta be patient.”
He was alluding to another reason investors may not be interested: Years of quick returns from tech companies have impacted the style of younger people in the market. However, Phillips suggested the time was right for a turnaround. “If you look back to the dot com crash and then the early 2000s, we had a great resource market,” he said, and pointed out that a similar shift took place following the recession of 2008.
Brent Cook agreed that there is a malaise, and said that age was a factor. “Younger folks have grown up on high tech, dot com, AI,’ he said. ‘… There isn’t a lot of new blood coming into the sector.” He then took a quick poll of how many first timers there were in the audience, and said that he could see that some interest was coming back in based on the results.
Offering a different perspective on the market, Rick Rule suggested there wasn’t a malaise, but instead it was suffering from overfunding. “I think the industry needs 700 junior miners to go bankrupt,” he said, noting the industry loses between $2 billion to $5 billion a year and that only 5 percent of companies are generating any real value. According to Rule, the oversaturation in the market makes it difficult for investors to recognize that 5 percent.
Finding opportunities
Despite a slow market for junior miners, there are still opportunities for investors. The panel discussed the key things speculators need to consider when looking for these opportunities, including deciding on their personal strategy for when to make a play. Rule explained that some investors are quite specialized, focusing particularly on, for example, drill hole results, developers, takeovers or undervalued stocks.
Whatever strategy investors use, they have to do their due diligence. “I’m attracted to that drillhole discovery place, because that’s where you get these explosive profit opportunities,” Brien Lundin said. He said it can be a risky kind of play, but added that now is a great time to mitigate that risk by investing in companies that are undervalued. “There are a lot of fantastic companies out there have really good resources that are selling for a quarter to a fifth of what they would be selling for in, not a euphoric market, but a normalized market,” he said. “So it’s more of a value-investing thing right now.”
Knowing when to get into the market is important, but perhaps more important are the people involved in the industry. As Rule alluded to, there are a lot of companies working in the mining sector, but that can make it hard for companies seeing success to stand out.
Lundin explained that investors can find great opportunities by understanding the key players in the industry and the projects they support. “These are people that have had previous successes,” Lundin said. “So when they put their name behind something, they’re putting their reputation behind it, and that’s more valuable than money.”
Rule added, “I would argue the pedigree is more important than anything else, in any form of venture capital.”
The panel discussed how much the living legends like Chris Taylor, Bob Quartermaine and Robert Friedland have contributed to the industry and to the success of investors, but also noted that newcomers shouldn’t be ignored. They suggested Zack Flynn, Charles Funk, Bruce Smith and Quinton Henning and groups like Inventus and Lumina as people for investors to watch.
A general sentiment among the panelists is doing due diligence and knowing the people are key to involved are key to maximizing success as an investor.
The panel’s picks
Before wrapping up, Rule asked the panel about what exhibitors they would suggest for investors to keep an eye on.
Cook opened the discussion by suggesting Headwater Gold (CSE:HWG,OTCQB:HWAUF), Vizsla Silver (TSXV:VZLA,NYSE:VZLA) and Heliostar Metals (TSXV:HSTR,OTCQX:HSTXF) — a company universally liked by the panel — as companies he sees are great opportunities.
Tavi Costa suggested Tectonic Metals (TSXV:TECT,OTCQB:TETOF), Altamira (TSXV:ALTA,OTC Pink:EQTRF) and Barksdale Resources (TSX:BRO,OTCQX:BRKCF), and Lundin named Gold Basin (TSXV:GXX,OTCQB:GXXFF), Fireweed Metals (TSXV:FWZ,OTCQB:FWEDF) and Banyan Gold (TSXV:BYN,OTCQB:BYAGF)
Investor Takeaway
For most on the panel, the market hasn’t seemed to perform well over the past few years, especially given many commodities prices performing strongly, but they all agreed there are opportunities in the market.
As Rule said during the session, “I want to use the experience of the panelists to, in the biblical sense, teach the audience how to fish. The audience, however, would prefer if the panel caught the fish, cleaned the fish, prepared this fish and served it up with appropriate garnish.”
The panelists did offer investors some fish in the form of their mining company picks, but the knowledge and strategies offered by the panelists is invaluable for investors looking to learn how to catch their own.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.