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A Monday Morning Musing from Mickey the Mercenary Geologist
Contact@MercenaryGeologist.com
August
20, 2018
I have long promulgated
the idea that the junior exploration sector provides the highest risk /
highest reward scenario within the broad category of natural resource stocks.
However, some speculators
prefer to own senior mining stocks. These people like to think of themselves
as investors because mining stocks have the possibility of strong
incremental returns during bull market commodity cycles and they also may
offer small yield dividends typical of the sector.
That said, I beg to
differ and will continue to label them speculators for reasons
detailed below.
I urge you to consider
these somewhat sobering figures:
·Four out of ten mines
(40%) fail because they never return initial financiers’ capital.
·Four out of ten mines
(40%) trade dollars until they are depleted of ore and shut down.
·Two out of ten mines
(20%) return windfall profits to their initial investors.
Webster’s Dictionary
defines an investment as an outlay of money for income or profit.
Folks, this means that
only one of five producing mines posts an income or profit to its owners,
i.e., shareholders, and actually qualifies as an investment.
Given the above, I will
conduct a thought experiment on the process of discovery, exploration,
economic assessment, financing, mining, and success or failure:
·A mining or would-be
mining company discovers a mineral occurrence, explores it with drilling,
posts a series of increasingly confident mineral resource estimates, performs
preliminary metallurgical and geo-technical studies, and perhaps conducts small-scale
development or test mining.
·Based on technical
results from all of the above, said company decides to evaluate the mineral
resources with mining, metallurgical, economic, marketing, legal,
environmental, social, and government factors to determine if the mineralized
body constitutes an ore deposit at that particular point in time.
·The mining company
calculates proven and probable mineral reserves and tables an economic
feasibility study on the project
·The positive feasibility
study conforms to regulations of the governing securities administrators and
is deemed acceptable.
·Funds are raised via
equity offerings, issuance of debt, and/or forward royalty or streaming sales
to finance development and construction of a mine.
·With these funds, the mine
is permitted, built, developed, and enters into commercial production.
But 40% of these mines do
not return initial capital expenditures and thus are deemed economic
failures. Another 40% manage to break even over the life of the mine.
Now think about this
tidbit: Have you ever read a negative feasibility study?
Then recall this adage: For
every failed mine, there was a positive feasibility study.
Therefore, I conclude
that mining is seldom an investment.
Q.E.D.
Folks, this is why I
don’t want to own shares in mining companies. Instead, I choose to speculate
in junior exploration companies.
Ciao for now,
Mickey Fulp
Mercenary Geologist
The Mercenary Geologist
Michael S. “Mickey” Fulp is a Certified Professional Geologist with a
B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc.
Geology from the University of New Mexico. Mickey has 35 years experience as
an exploration geologist and analyst searching for economic deposits of base
and precious metals, industrial minerals, uranium, coal, oil and gas, and
water in North and South America, Europe, and Asia.
Mickey worked
for junior explorers, major mining companies, private companies, and
investors as a consulting economic geologist for over 20 years, specializing
in geological mapping, property evaluation, and business development.In
addition to Mickey’s professional credentials and experience, he is high-altitude
proficient, and is bilingual in English and Spanish. From 2003 to 2006, he
made four outcrop ore discoveries in Peru, Nevada, Chile, and British
Columbia.
Mickey is
well-known and highly respected throughout the mining and exploration
community due to his ongoing work as an analyst, writer, and speaker.
Contact: Contact@MercenaryGeologist.com
Disclaimer
and Notice: I am not a certified financial analyst, broker, or
professional qualified to offer investment advice. Nothing in any report,
commentary, this website, interview, and other content constitutes or can be
construed as investment advice or an offer or solicitation or advice to buy
or sell stock or any asset or investment. All of my presentations should be
considered an opinion and my opinions may be based upon information obtained
from research of public documents and content available on the company’s
website, regulatory filings, various stock exchange websites, and stock
information services, through discussions with company representatives,
agents, other professionals and investors, and field visits. My opinions are
based upon information believed to be accurate and reliable, but my opinions
are not guaranteed or implied to be so. The opinions presented may not be
complete or correct; all information is provided without any legal
responsibility or obligation to provide future updates. I accept no
responsibility and no liability, whatsoever, for any direct, indirect,
special, punitive, or consequential damages or loss arising from the use of
my opinions or information. The information contained in a report,
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without notice, may become outdated, and may not be updated. A report,
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