How to back the right minnows

Some would argue picking junior mining winners is more of an art form than a science, but a panel of experts commendably put their heads above the parapet to offer advice to would-be investors during a panel discussion at Mines and Money.
How to back the right minnows How to back the right minnows How to back the right minnows How to back the right minnows How to back the right minnows

Richard Wachman

First off the starting block was Dave Lotan, portfolio manager with Polar Capital. These days, he said, companies that consume money to produce wealth need to have a leader with the sort of charisma and stature of someone such as Elon Musk, founder of electric cars company Tesla.

“In other words, they need to convince the market they are making their enterprise more valuable by spending money; in mining it’s exactly the same story.”

Geologist Neil Adshead, investment strategist at Sprott Asset Management had a different take. He focused on managerial strength. This was evident he thought at B2Gold, where key executives played different but pivotal roles, in this case CEO Clive Johnson and chief geologist Tom Garagan, senior vice president of exploration, “an extremely good example of ‘pairing’”, suggested Adshead.

He also flagged up “the very capable” Anthony Hall, managing director of Highfield Resources, “who tells the company’s story with passion and has put in so much hard work into growing the business”.

Another of Adshead’s favourites was William Lamb of Lucara Diamonds. “He’s being doing it for years, does a great sales job and has an in-depth knowledge of the diamond market.”

Lawrence Roulston, president of Quintana Resources Capital cut to the chase, saying “sometimes we like the project, but then we ask do we like the management and too often, the answer is no”.

He said: “What is lacking is operational expertise and mining engineering expertise. When it comes to juniors, you need two things; someone to plan it, and someone to execute it – and not infrequently we find there is neither, or one without the other.”

But what were the key physical attributes they were looking for when they looked to invest, asked panel moderator, Chris Welch, chairman of the association of mining analysts.

Lotan admitted he had no specialist expertise: “I’m not a geologist.” But what interested him was the flow of funds, where were they going to next, could he pick up the scent of something. If interest in one commodity was ebbing away, he might go short of this or that company or metal. If interest was building elsewhere, he would go long. His experience and knowledge was in precious metals, he added.

Geologist Adshead took a different tack. He liked deposits he could “drill off, cheaply and quickly”. Gold was complicated, he preferred base metals, zinc, nickel, copper, even coal. But gold? Too many were underwater, he said.

But would anyone on the panel care to name a winner or two? Here, Lotan took a stab and highlighted some of his biggest successes. Riversdale Resources, for instance. He had a big holding in the company “when Rio came over the hill” and acquired the company some seven years ago and Lotan’s firm made a killing.

Then there was Kaminac Gold, worth C8 cents (US6c) on the Toronto exchange in 2008, climbing to $C4 in 2010, and then higher 12 months later when Lotan cashed in his chips making 30 times his original investment.

“It’s good when that happens,” he mused.