Junior resource companies are like the many-headed Hydra: One dies and two more will take its place. Every time I turn around, another junior resource company is proclaiming that it has struck a bonanza-grade deposit of whatever resource it’s exploring for, the deposit goes ALLLL the way down, and they’re neighboring the greatest producing mine of all time.
As an investor, it’s easy to get caught up in the hype and to spread yourself too thin as you look for compelling investments – in one day you might look at a gold explorer in the Abitibi belt and then a silver explorer in Peru and then a graphite company in Mozambique and then a rare earths company in China and then a uranium company in Saskatchewan.
I realize that I was almost overwhelmed by choice and it was actually making my investing less successful and less enjoyable.
What I wanted was a way to focus my research, tune out the noise, and figure out how to become a better investor.
So I put together this simple chart as a starting point. I created 2 columns, “Preferred” and “Not paying attention”, and in these two columns I sorted jurisdictions and resources that I was interested in paying attention to and jurisdictions and resources that I’m not paying attention to right now.
Here’s the chart:
|Preferred||Not paying attention|
HOW A SIMILAR CHART COULD BE USEFUL FOR YOU
- By identifying which jurisdictions and commodities you’re interested in, you’re helping to focus your attention on some of the things that best capture your attention, which is a great place to start when looking at different investing opportunities. When I hear about a new gold mining opportunity in Ontario, I’m giving myself permission to take a closer look because it’s the jurisdiction and resource that interests me, so I’m presumably more familiar with the details. (Even if I’m not an expert, I am at least starting from a base of familiarity). If you’re familiar in just a few areas, you can make better apples-to-apples comparisons of mines that explore near each other… compared to learning what makes a good uranium mine in Saskatchewan and then having to relearn what makes a good molybdenum mine in Australia.
- By adding something to the “Not paying attention” column, I’m not sweeping an entire continent or commodity into the trash can, never to look at them again. In fact, I do own companies that mine in these jurisdictions or work in the resources listed in the “Not paying attention” column. However, this chart serves to keep my euphoria in check when I hear about an AMAZING new exploration story. If it’s an aluminum mine in Asia, the chart is a reminder to me that these aren’t in my “Preferred” category so I need to do an extra check during my due diligence because I might not be as familiar with the jurisdiction or the resource. In the case of Flinders Resources (TSX: FDR) it was in a jurisdiction I was not as familiar with but I invested in anyway… I just needed to do some extra legwork ahead of time.
- This chart also becomes a curriculum to help me learn to be a better investor. I can identify some of the jurisdictions and resources in my “Preferred” category and learn more about them. For example, I can see by looking at this chart that I’m woefully uneducated in the states/provinces of Mexico, Peru, and Argentina so that might be a good place to start. Or perhaps I can build on my interest in gold and dial in more information about gold-copper-zinc plays. And, I can do the same in my “Not paying attention” category. If I feel that I want to range out into a new jurisdiction or commodity, I can be more strategic in deciding what to look at next. For example, perhaps I’m willing to take on a little more political risk in my portfolio so I could look at some explorers in Africa or Asia.
I should also note that just because something is ON the chart doesn’t mean I’m invested in it. Copper is a good example right now. But it does mean that I’m familiar with the resource and that familiarity helps me trade more effectively. And I’ll keep an eye on copper for when I might find another opportunity that interests me.
A chart like this helps you to sort through the barrage of exploration companies, tune out the noise, and find exactly the kind of companies you are most likely going to get excited about.
You don’t have to just use the two categories – jurisdiction and commodity – that I’ve done here. There might be other elements you can also include to help you focus even further: Some others I might consider would be: Type of company (explorer, developer, producer, etc.), business model (prospect generator, mine-to-mill, etc.), market cap, stage in the mine lifecycle,