Brent Cook of Exploration Insights says while institutional and retail funds are scarce “the people who know the industry the best” are putting money into juniors.
Speaking with the Investing New Network at the International Mining Investment Conference in Vancouver last week, Brent Cook, co-editor of Exploration Insights, said that to really get a feel for a mining company, investors have to be on site turning over rocks.
Cook also shared tips on questions investors should ask companies they are considering throwing in with, highlighting geological estimates as a major sticking point for assessing project viability.
“What I would do is ask a company, ‘what is it you’re looking for, what does it look like, what are the economic parameters behind your conceptual target?’ … if they can’t answer that … then you know it’s not worth buying,” said Cook.
In terms of commodities he’s looking at, Cook said copper is in the mix, and offered insight on where the market is headed in the next few years. “Majors are looking for copper, [but] they’re looking for such big deposits that their discovery rate is one every 10 to 20 years, and it’s slowing down a lot.”
Overall, Cook believes it’s a good time to be in the resource space, but cautioned investors, “you … have to be extremely selective in what stocks you buy.”
Watch the video for more detailed insights from Cook, including his top stock picks and thoughts on the most exciting news in mining in 2018. You can also read the full transcript for the interview below.
INN: Right. So, we’re here at the International mining investment conference in Vancouver. How are you finding the conference so far?
BC: It’s really slow which is not unexpected, given how the junior mining market has been behaving over the past year, so it’s relatively slow but there’s still some good companies here and it’s a good time to start to really do some investigative work.
INN: Right, and yesterday you talked about that we’re currently in a flat market. Can investors still make gains in the current environment and if so, how?
BC: I think so. I mean the markets bifurcated in a sense that there’s no flow of funds. There’s no institutional money coming in. There’s hardly any retail money coming into the sector yet on the other side the people who know the industry, the best the mining companies. They’re putting a lot of money into the junior sector because they recognize further down the road they don’t have the reserves to replace what they’re mining. So, I think it’s a good time to be here but you just got to be extremely selective in what stocks you buy
INN: So, yesterday you gave a presentation about due diligence and what would you say is the critical factor an investor should pay attention when looking at a company and whether the project is going to be a success or a failure?
BC: I mean the answer to that could take a half hour or an hour but basically what Joe and I do in our newsletter is, we evaluate every prospect in terms of what’s the ultimate economic value going to be, in terms of what’s the profit margin revenue on a project and we do that right from the start. When I go look at a project grassroots, I pick up a rock and you need to look at it go, “Okay. So, where am I? What’s it going to take to build the infrastructure? How’s that or going to come out of this? What’s the social situation?” Those sorts of things at which you really need to look at. For someone walking around here that’s not an expert in this sector, I think what I would do is ask a company, “What is it you’re looking for exactly? What does it look like? What are the economic parameters behind your conceptual target so then on top of that, what’s the grade antennas you need to make a discovery that’s going to cover those costs?” If they can’t answer that and you’d be surprised most of them can’t, then you know it’s not worth buying.
INN: All right. Okay. Yeah, and my next question was going to be, you know, an investor comes to this type of conference. They go to a booth. They’re starting to talk to a company. So, what will be the top three questions to ask I guess?
BC: I guess give me the geologic concepts, the mine type that you’re looking for, okay? I give you that. Okay. What is it that you need to find in terms of tons in grade? They cover the capex and operating costs and what are those operating and cash cost? Then I guess third is how are you going to get– that’s going to take money, right? What’s it going to take to get to those hurdles? How are you going to raise the money and how is that going to impact the share price? Which is all I care about. Is the share price going up or not? You’d be surprised how many don’t have answers to those questions.
INN: Right. You talked a lot about looking at the numbers behind a project and looking at resource estimates. What is the most common mistake when looking at these reports that could lead to maybe a misinterpretation of the resource?
BC: When it comes to resource estimates, they’ve got to be geologically constrained and what I see happening all too often is you’ve got some person who’s really good with a computer, can whiz-bang, do all this sort of thing and throw the numbers and build your spreadsheet, throw you out a model 3D and all that but they don’t have the geologic background and experience to put constraints on that. I’ll pick a company like Rubicon. That’s what they did. They blew up, they messed up, went from pokes rollbacks from about 300 bucks to about 38 today. You look at something like what’s another one, that’s experiencing issues right now. Pretium (TSX:PVG). That was a very complex geologic mineral model but so far it’s not working so good. So, those are two that are having issues with the resource estimate they’ve started with.
INN: Right. What has been the most exciting story in the exploration sector so far this year?
BC: Personally and this is one that we own in the news that we’ve owned it for a number of years is Evrim Resources (TSX:EVM). We got in at 10 cents and again at 40 cents and they’ve made a discovery in Mexico. Joe and I were down there two weeks ago looking at it and it’s taken the stock up to about a buck 25 now and they’ve got an oxidized deposit which is really good in terms of costs for mining costs and processing costs sitting on a hill, which means your trip ratio is going to be minimal in a great location in Mexico. So, it’s got all that going for it although caveat we’ve only got two dimensions. We’ve got surface information, we don’t have the drill results. It’s not going to happen until July but right now that is the most exciting thing I see out there.
INN: Right. Let’s talk a little bit about copper. What’s happening in the exploration sector on the copper side of things?
BC: Well, certainly the majors are looking for copper, you know, BHP, Rio Tinto, Freeport, they’re out there looking with their own teams but they’re looking for such big deposits that their discovery rate is one every 10 to 20 years and it’s just slowing down a lot. We’re not seeing a lot of exploration by junior companies for copper deposits perimeter because it takes three to four times as much to do any copper deposit as a goal deposit. So, looking further down the road again, we’re looking at a copper deficit showing up in the next 5 to 10 years. If we find one today, it’s going to be 10 to 20 years before that even goes in production. So, it’s getting pretty interesting.
INN: All right, and finally Brent, can you show your top stock fix with our audience today?
BC: All right. These are ones we have in our newsletters about what we’re actually buying with our money and that’s how we make our money, subscriptions and our trading. Evrim Resources is a certainly one. Mirasol Resources (TSX:MRZ), a very smart group of people working in Argentina, Chile. They have joint ventures going. And the third one, I would say look at a bit safer play which is Premier Gold (TSX:PG). They have production coming out of Mexico and Nevada and some really positive exploration results coming up. So, those are the three that I would probably do right now.
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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.