Posted by: Brian Boutilier on Oct 09, 2010
Selection Criteria for Mining Stocks
I am gearing this toward the new folks to metals and miners companies. I do this in hopes of lending some structure. When one is disciplined about gathering fundamental information about a company, one has a better chance of making informed decisions.
I described the screening process in limited detail in Screening Precious Metals and Mining Companies. As mentioned in the first article, screening is the first of a two- part process. First is the screening or (casting the net), second is the sorting (keepers from throw-backs).
Selection Criterion Outline
a. Screening: We have looked at the snapshot of what the company does, the business model, where its projects and properties are.
b. Selection: Now we will look over the whole website in greater detail. I will look over whatever corporate presentations are available. We are starting to gain a sense of movement. Where is this company, and what will change, and how soon?
II. Stock Symbols
a. Screening: I will use several different websites to find the stock symbols for the company because the website does not always list all of its stock exchange symbols.
b. Selection: What is the strength of the stock symbols?
1) Toronto vs Toronto.V, OTC vs NYSE/AMEX. The main exchanges are more stringent in their listing criterion, so the company should be stronger, and forced to be more honest and straight forward in their communications.
2) Is there robust trading? Some of the smaller exchanges can be difficult to get in/out of a position.
III. Share Structure
a. Screening: Found in “Investor Information”
b. Selection: I will dig into the financials, and actually find out the break-out of the fine details
1) Is there also, Senior Notes, Warrants, Options? What are they priced at and when are they due?
2) What is the true fully diluted capitalization? Below 100M, 100-300M or 300+. How does that relate to the share price, and is there a sense of this company being undervalued?
3) Is the company capable of getting to the next phase in the life cycle of the mine without further dilution?
4) If dilution is imminent, will it unlock value, i.e. define or expand the resource, or get the resource from below ground to above?
a. Screening Information is usually found in the “projects” section of the website
b. Selection: At what stage are the various projects?
1) Explorers: Will there be upcoming prospecting of new properties? Drilling on finds after trenching or VMS overhead surveys? Drilling to find a mineral resource? Define a resource with Drifting or depth? Shift the resources from mineralization to inferred or proven reserves.
2) Producers: Increase in capacity, production rate, margin? Opening another mill, plant?
a. Screening: Usually under “Investor Information”
b. Selection: High cash and equivalents. Manageable current and long-term liabilities
1) Explorers: High percentage of exploration vs administrative expenses.
2) Producers: Closing in on profitability for new producers. Increase production rates, margin and diluted gain.
VI. Corporate Structure
a. Screening: Again listed under “Investor Information” or “Corporate” depending on the company
b. Selection: Is senior management capable of the mission, vision they set forth.
1) Do they have a good blend of business vs geologic expertise for explorers.
2) Mining Engineers and Mill managers for producers.
3) Marketing/Fund Raisers or reputation to generate capital.
4) Does the board of directors have the connections, financial experience to generate capital, Joint Ventures or whatever is necessary to go forward with their plans.
VII News Releases
a. Screening: Usually under “News”, occasional under “Investor Information”
b. Selection: Are they achieving their goals set forth in last years corporate presentation? Are they on time and making deadlines? Are they finding the rock, expanding the resources or improving production, margin?
a. Screening: Usually Under “Investor Information”, looking for corporate presentations.
b. Selection: Are they achieving the goals set forth, and are they realistic? Are the annual presentation changing, evolving in a positive manner?
1) What are the board and blogs saying. Tone of the blogs? Descriptive and upbeat or angry and divisive. Why?