Thom Calandra: How to Not Get Burned When Investing

In past interviews with the Investing News Network (INN), Thom Calandra of The Calandra Report has spoken extensively about the commodities and companies he likes. But how does he decide which companies to invest in?
At this year’s Prospectors & Developers Association of Canada (PDAC) conference, INN asked Calandra what qualities he looks for when deciding to invest in companies, and what factors he considers red flags. Like many experts, he said that for him management is key.
“I think a lot of it comes down to focus and individual initiative, individual connections, individual brilliance, in a way, and talent. Let’s throw in a few other things: honesty, integrity, timing, capital,” he commented. “As best as we can, we can make a judgment, and I’ve been making more judgment calls internally about the integrity, the work ethic, the intelligence of the people that I’m investing in.” 
Calandra also touched again on a few commodities he’s interested in right now, and mentioned some companies he finds compelling. Notably, he’s feeling optimistic about zinc, gypsum and tin, but follows only one lithium company.
Watch the full interview above, or scroll on to read the transcript. You can also click here, here and here to view some of Calandra’s past interviews with INN.
Editor’s note — in this interview Nemaska Lithium (TSX:NMX,OTCQX:NMKEF) is said to have a market cap of $120 to $140 million. As of March 20, 2017, Nemaska’s market cap was $420 million.

INN: Last time we spoke, we talked about uranium, we talked about zinc and I think briefly about copper. I’m interested in hearing whether there are any other commodities you’re feeling optimistic about this year.

TC: I’m liking zinc, as I said. I just met with Pasinex Resources (CSE:PSE), a company that actually produces zinc, direct-shipping zinc. That means the ore goes straight onto a truck and gets shipped to the smelter. It’s very profitable for this company — Pasinex. Another company owns a stake in that one, Eurasian Minerals (TSXV:EMX,NYSEMKT:EMX). So zinc is great. It’s being used as fertilizer, it has other users.

Gypsum is interesting. We’re seeing some gypsum mines because that’s become not just profitable, but gypsum prices have risen, like a lot of commodities [in] the past couple of months, in the past year. But gypsum is also a fertilizer.

And finally, I’d throw one out there … I’m just starting to learn a little bit more about it — tin. T-I-N, tin. It’s an element. It’s used not for tin cans that much anymore, right? That has been replaced, as we know, by aluminum and by alloys. But it is used for smelting, to replace lead in electronics, and there are very few tin mines in the world. I think there is one in Australia. There’s one in Southern England … that’s trying to get online again. There are a few others in South America. So tin. And to be honest, except for one or two small companies that I know about, I wouldn’t even know how to invest in tin, but that is way off the radar, and it’s something that we could see some excitement about.

INN: How do you feel about the trendier commodities right now, like lithium and cobalt? Are you interested in those at all?

TC: I only own one lithium company, I only follow one lithium company. And I’ll tell you before I tell you the name, it’s a fairly well-known lithium company. I’ve had people approaching me about lithium companies left and right for the past five years, and I’m sure I could’ve made money on some of them. Some of them are tiny. There was even last night at a dinner we were having here in Toronto for Riverside Resources (TSXV:RRI) — there was a fellow from Germany who is running a small Ontario lithium company. There are so many, I can’t even keep track of them. I’m a little wary. I’m much more of a believer in graphite and in cobalt.

But as far as lithium, I own Nemaska Lithium, and Nemaska is online with a product in Quebec, and that’s run by Guy Bourassa. And Guy is an attorney that has been at this for about six years. It has probably about a $120- to $140-million market cap. So it’s a substantial company with cash. It has an offtake agreement with Johnson Matthey (LSE:JMAT), which is a battery maker.

So I just have one decent-sized investment in lithium, Nemaska, and it’s not a very speculative lithium. I really try not to follow any of the others. So there you go on that one, Charlotte.

INN: You follow a wide range of companies in your work. I’m wondering how you choose which ones to invest in. What are the criteria that you’re looking for when you make an investment?

TC: Good question. Charlotte, in the past six or seven years, I have been burned by so many people, like all investors have. And not just in junior miners; in scientific companies, in labs, in technology companies. I think a lot of it comes down to focus and individual initiative, individual connections, individual brilliance, in a way, and talent. Let’s throw in a few other things: honesty, integrity, timing, capital. I’m not going to mention luck. Not that I don’t believe in luck.

And so I’d have to say the answer to that question is people. I’ve been trying to pair the companies that I own and that I follow for The Calandra Report and The Calandra Network based on the people. We never can really know everything there is to know about a person, his motivation, her interests, her skill sets and stuff. We often don’t know a lot about ourselves or our children. But as best as we can, we can make a judgment, and I’ve been making more judgment calls internally about the integrity, the work ethic, the intelligence of the people that I’m investing in.

INN: On the flip side, what would be a red flag for you? What would make you go, “okay, no, not that company”?

TC: You have to go to the proxy statements, the prospectuses and the filings to look at the salaries that these folks pay themselves. Not necessarily the options, but the actual salaries they pay themselves, or the consulting companies they create to pay themselves. That’s important. I think it’s important, of course, to see insider buying or an insider stake. [Although that’s] not always important — let’s face it. Sometimes these things are run by very talented executives that may not be able to afford … to own a few million shares that cost them even a few hundred thousand dollars. That’s the way it is. But I do like to see ownership.

If I don’t see ownership, if I see confusing or promotional — what I call “vaporware.” We used to call it vaporware in the old days, in the technology days at MarketWatch. Vaporware is when a company feels like it has to get anything it can out onto the paragraph from the paragraph factory. All you have to is know how to read, whether it is English, Spanish, Italian, French. And you’ll know whether it is vaporware or realware. So, if they are using the market wires a little too much on the paragraph factory, I’m wary.

And of course, I like to see people who are … capable of fulfilling the goals that they state, and those goals have to be pretty clear for the company — strategic goals, strategic events. And if they have failed on that end in the past, I’d like to know why, and I’d like to see how candid they are about it. So if they lack that sense of openness and frankness about their failures, I stay away.

And finally, I do like to see a company that has been in business for more than a few years. If I don’t see a company that has been in business a few years, the red light comes on. That red light is not in Amsterdam, it’s in my portfolio. 

INN: That makes sense. Since we’re at PDAC, I want to end by asking you a few questions about the conference. What’s the most interesting thing you’ve heard so far? Have you been introduced to any compelling companies?

TC: Yeah. My friend Glenn Mullan from Golden Valley Mines (TSXV:GZZ) took over as the president of PDAC this year. Glenn is terrific. He runs four or five companies in Quebec, and he’s a lifelong collector of royalties. I love royalties. I think that right now on the royalty end, we’re going to see a few companies perform well, we already have. One that I followed early that is doing extremely well is Metalla Royalty & Streaming (CSE:MTA), run by a young man [named] Brett from Canada and from California. So Metalla has tripled in price as it puts together royalty and streaming deals that are some sort of soft guarantee that one day, soon, people will see income. Income is important. 

I love when people continue to build their resource and their reserves, even as they get flak for it … and they see success. I think Seabridge Gold (TSX:SEA,NYSE:SA) is a great example. Rudi Fronk has done a very good job at sticking to his knitting. And hoping for the day soon, and this is a theme, Charlotte, that I have heard here more strongly than at any time in the past six or seven years, waiting for the day when major commodity companies, producers seek to replace their reserves. So that some of these beautiful big projects out there, gold, silver, platinum, copper, like Seabridge’s KSM in BC — there are quite a few, I can’t name them all — get bought for their reserve value. Big companies need to replace their reserves so that they can start to develop them over a long timeline, as their other reserves and their mines become depleted.

Don’t forget to follow us @INN_Resource for real-time news updates!

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 contributed article. 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.
Nemaska Lithium and Pasinex Resources are clients of the Investing News Network. This article is not paid-for content.
Related reading: 
PDAC 2017, Day 1: Notes from the Floor
PDAC 2017, Day 2: Notes from the Floor
PDAC 2017, Day 3: Notes from the Floor