Several mails in the last 24 hours have contained the questions along the line of “Do you see underlying value in the mining company XXX?“. The answer in each case was yes, because the plain fact is there’s underlying value freakin’ everywhere now. If you’re acojonado enough to jump in, first make sure you have there on your side (in this order, too)…
- A proven management team; not by their own puffed-up opinions of themselves, but a real history of success in the mining
- A good address; you want to be in a country or a region with a good attitude towards both foreign investment and mining investment. As regards LatAm for example, most of Mexico, most of Peru, nearly all of Chile, most of Brazil and about half of Colombia fit nicely. However Ecuador, Bolivia, Argentina do not. And of course there are more good and bad names both inside and outside of LatAm to consider.
- A decent prospect. Be picky insist on top quality projects, not any old thing.
- A strong balance sheet. Does your target company have a decent wedge of cash? Have heavy debt? Have a low/high burn rate? If a producer, is it free cash flow positive? Know the answers to these basic questions
…because if not, your chosen vehicle may stay weaker, longer. But even with stocks that comply with all those, you’re still spoiled for choice.
However the single most important thing to know is that “underlying value” is a whole heap of BS at times like these, fundies analysis is no help when it comes to market sentiment and the rug can be pulled from right under the relatively small and unimportant junior mining sector by one decision or press conference from some politico in New York London Paris Munich* Beijing Athens or wherever else and the market can quickly send all these share prices, even the best of the cream companies, a lot lower still. Yup, buying some quality stocks now and holding 12 months is a decent and valid alternative if you have the stomach, but be in no doubt that if you’re a buyer today you’re a gambler. That’s neither good nor bad, it just is.
*everybody talk about pop music