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« Endeavour Silver Corporation: BUY | Main | Silver Wheaton Corp: A 25% increase to 362 million ounces »
Friday
Jun292007

Miners: It is not good enough to be good

Having spent a good chunk of my career involved with major construction projects I have gained experience in the Engineering, Procurement and Construction (EPC) timeframes of a variety of projects.

The reason we are bringing this to your attention as investors is in response to our mailbag, which currently has a theme of:

“I bought this mining company a couple of weeks ago and they have not produced any metal yet”
Gambler
There would appear to be a real problem of understanding and of communication. The investor, who lets face it, is to some extent a gambler by nature brings with him a ‘Track’ mentality. He picks his horse and places his bet, taps his fingers as he awaits the starting gun and bang they are off! A few minutes later he has a result. Fast forward to today and he has heard about the new ‘hot’ money making precious metals sector and he dives in hoping for result by tea time. The result of the mining companies efforts for that day are not visible and even less measurable, so he rings the Managing Director and is stunned to learn that he is clad in a hard hat and boots down a hole in an unpronounceable name of a place in South America. Having not done a great deal of research he is worried that the MD is in Slowbovia, a country stuffed full of revolutionaries baying for the wallets of the investor! Our gallant investor is now having second thoughts about keeping his hard earned cash in such a precarious investment vehicle.

Does he stay or does he go?

The more enlightened mining companies have to some extent realised that they have a problem and have employed someone with ‘Investor Relations’ skills. An unnecessary overhead you may think but the best opportunity in the world will whither and die without the sunlight, in terms of exposure that these people can bring to this party.
Investor relations
Investors need to be fed and your news flow is that conveyor belt which delivers either nourishment or starvation. The frequency and the quality of your content are absolutely vital to the well being of your investor.
In terms of frequency a precious metals mining company should never go more than two weeks without a press release. If your last press release stated that you are about to commence a drilling programme on Supa-project and it will last for three months, then it is no good waiting for a fantastic set of drill results before you prepare another news release. Get a grip of whoever is in charge of Operations and interrogate him until you have a breakdown of the next three months in activities no longer than one week.
Detailed Schedule 1
You can now measure the progress and prepare a news release of some substance. If you have a broad-brush programme without the detailed breakdown to back it up, you are in our opinion amateurs. The success of your project should be predicated upon ‘bottom up’ detailed planning and scheduling data. When we approach companies it soon becomes apparent that there mission might be clear but their road to it is fog bound, so the arrival time is clouded in uncertainty. We are only talking about time you say, believe me Time is Money.

We will now take a quick look at the quality of the news flow. Press releases that talk about an everyday appointment or stock options for Directors are only stocking fillers and in terms of enthusing your customer, the investor, they are about as much use as a chocolate fireguard. As investors we want detailed content, facts, figures, target dates, actual dates and at least some brief explanatory notes. After all we are the owners and deserve to be informed. Without this basic data we are with uncertainty, which is a precursor to negativity. When negativity calls we vote with our feet and withdraw our financial support.

To be a good mining company is not good enough, you need to tell us and keep on telling us how good you are by demonstrating your achievements. Savvy investors are aware that you have many problems to solve and they appreciate being made aware of these problems and the proposed solution, so communicate. Wall papering over the cracks only delays the inevitable and breeds distrust. Lose the trust of your investors and you are history.

To conclude as investors we need to acquire some patience and understanding of the difficulties inherent in mining and as mining companies you need to hone your communication skills. This would go some way to raising confidence levels and stemming the erratic movement of funds.

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Reader Comments (1)

I think this is very true, but obviously the investor mentality is all over the place. For instance, I bought some shares of Silver Dragon a while back and suddenly it was taking off. I'm used to my PM microcap shares not doing a thing, so I was surprised. :) Then, because the company was late with its financials for some reason that seemed benign, the shares started going down. A flow of very positive news has been coming out of the company since, but the shares are still dropping each day. Of course, yes, silver has dropped, but even so, the potential value of the company has increased quite a bit. That's the mindset out there.

While I do think mining companies need strong investor relations, as investors, even speculators, we need to have some patience if we expect a major payoff, which I certainly do in the shares of everything that I hold.

Up or down in the short terms doesn't really matter. Interest in these stocks is all a question of fashion. Of course people trade on the technicals, such as the price of the commodity--without foresight as to the price in the future. Never mind that. We should just know what we believe in and part of that belief is that the dollar will continue to drop.

I've had mildly decent returns on my investments but expect when PMs, uranium, PGMs, nat gas, and some base metals finally become the market stars to make quite a bit. I do believe it's the opportunity of a lifetime for investors, that it's a clearcut market in the long run.

June 30, 2007 | Unregistered CommenterGMiki

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