Industry experts share the tips they believe mining investors need to follow in order to operate successfully in the space.
This year’s Prospectors & Developers Association of Canada Convention, better known as PDAC, has been and gone, but there are still lessons for investors to take away.
The four-day event, held last month in Toronto, brought together over 25,000 attendees from 135 different countries, and allowed investors to hear from the best and brightest in the mining industry.
At the show, the Investing News Network had the opportunity to interview dozens of speakers on a wide range of topics. While they had different opinions on where the resource space is headed, they were all eager to offer advice on how to succeed at investing. Read on to see the seven top tips they shared.
1. Educate yourself
This tip might seem obvious, but it’s one that mining veteran Tookie Angus made sure to mention. In particular, Angus, who has been involved in mining deals worth billions over the last decade, highlighted the value of attending events like PDAC.
“You’re going to learn things by being here. Unless you’re educated — you’ve got to understand what’s going on in this game, and it takes awhile to learn,” he said. Angus also pointed to the value of having connections in the industry, noting that most of the deals he gets involved in are very early stage.
2. Choose stocks wisely
While many experts are happy to share specific stock picks, most agree that investors should have an understanding of how to do their own research on companies. Here are a few things the experts we spoke with suggested looking at:
- Look for good management — “The biggest challenge in the industry right now is people,” said Lawrence Roulston of WestBay Capital Advisors. When he looks at stocks he wants to see capable, experienced management teams.
- Buy quality and look for “when” stories — Brian Leni of Junior Stock Review suggested investors position themselves well in quality companies, adding that it’s best to look for “when” (not “if”) stories.
- Find the difference between price and value — “I want to put a value on every company that I want to invest in, and I want to see if I can get it at a price that is substantially lower than the value that I can perceive in that stock,” said analyst Jayant Bhandari.
- Think long term — Consider taking a wider-reaching view by investing in companies focused on generative or early stage exploration, said Mark Ferguson of S&P Global Market Intelligence. Similarly, CRU Group’s Alex Laugharne said investors should avoid “piling into” hot markets and expecting immediate returns.
- Remember to look for flaws — Don’t just look for positive features in companies, commented Brent Cook of Exploration Insights. “Nine times out of there will be a fatal flaw that shows up.”
3. Diversify your portfolio
Many investors jump into the resource sector in search of 10 baggers — stocks with the potential to appreciate by 10 times their initial purchase price. While that’s an admirable pursuit, silver guru David Morgan believes physical metal should not be forgotten.
“I’ve believed all along that unless you own metal you really don’t have a metal portfolio,” he commented, adding, “having said that, the most leverage is in the mining sector, and the miners are undervalued relative to the metal itself. So if you already have exposure to the physical, the best bang for the buck is no doubt in well-chosen, well-selected mining companies.”
4. Don’t fall for narrative
Rick Rule of Sprott US Holdings is a well-known figure in the mining space, but his advice for investors was simple: “[use] common sense. Don’t fall for stories, don’t fall for narrative,” he said at PDAC.
Like Bhandari, he also mentioned price and value. “Remember that the price of a stock is only important if you have an opinion as to its value. The price is a floating abstraction. It’s the delta between price and value that matters.”
5. Know your risk tolerance
While it’s good to turn to experts for advice on investing, CRU Group’s Paul Robinson emphasized that investors also need to be self aware.
“As an investor, you’ve got to know your own risk appetite, and you’ve got to know your own risk tolerance,” he explained, adding, “it’s not for me to tell an investor which company is right for them.” That said, he did note that CRU Group currently favors base materials and steel over bulk commodities, and likes high-quality, lower-environmental impact commodities over those that are more polluting.
6. Don’t follow the herd
It’s tempting — and often easy — to go with the flow when investing, but investors who take that approach are unlikely to enjoy major success. Speaking at PDAC, Benj Gallander of Contra the Heard Investment Letter explained that he’s a contrarian.
That means he buys into companies that have been “badly beaten up.” He added, “we like what other people generally don’t, we hope that they’ll hop on board, push up the stock price and when the party is in elation, we like to get out.” Gallander also advised investors to prioritize paying down their debts.
7. And don’t forget that the market is cyclical
Investors are often told that the resource industry is cyclical — in other words, it ebbs and flows, with boom and bust periods occurring periodically. At PDAC, Chris Berry of House Mountain Partners and the Disruptive Discoveries Journal told investors not to forget that the idea still applies to popular metals.
Speaking about the rapidly growing interest in battery metals like lithium and cobalt, Berry noted that “we’re in the middle of [an] incredible structural shift around mobility and around energy storage.” Nevertheless, he said, “I still think that cobalt, lithium prices will go up, prices will fall. Those are still cyclical metals despite the fact that you’re seeing this really incredible structural change.”
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Securities Disclosure: I, Charlotte McLeod, 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.