For investors and speculators focused on growth, there is nothing more exciting than watching a stock go “on a run” for a big return.
Junior mining stocks, which are small publicly-traded companies that are aiming to make big discoveries, are well-known for being extremely high in both risk and reward.
But with a universe of thousands of available companies out there, how does an investor even begin to evaluate opportunities in this sector?
An Investor Checklist
We’ve partnered with Eclipse Gold Mining on an infographic series to show you how to avoid common mistakes when evaluating and investing in mining exploration stocks.
Part 1 of the series focuses on what to look for in a management team, including the types of characters you’ll want to avoid!
If you’ve ever researched mining exploration stocks before, it doesn’t take long to realize that every company will talk about how “great” their team is.
Here’s a few steps to ensure that the team is actually great — and not filled with pretenders.
Management Team Checklist
Step 1: Avoid the Bad Characters
The mining stock universe can be filled with interesting and amusing characters, but many of them are not there to generate you a return. Here are the personas you should aim to avoid:
- The Close-ologist
Funds new enterprises by staking land around a project that the market currently finds exciting.
- The Trend Chaser
Jumps from industry to industry, or mineral to mineral, to chase the market’s flavor of the week.
- The Pump n’ Dumper
Accumulates stock at insanely low prices, raises money, and then uses gray-area promotional strategies. Sells stock as soon as price is high enough to make a profit.
- The Commodity Collector
Builds up an extensive list of ongoing assets and projects, thinking that this reduces risk. But really, it just reduces focus.
- The Lifestyle Executive
Uses shareholder money almost exclusively to fund the salaries of management and other G&A expenses. Almost no actual work gets done.
- The Optimistic Geologist
This is usually the pet project of a geologist, and the project may have some merit. However, time is the enemy of the Optimistic Geologist.
It’s also not impossible for CEOs to exhibit two or more of these personas at once, so beware.
Step 2: Traits You Want to See
Examine the management team and the board of directors, and dig deep into their history. Here’s what you want to actually see:
|A clear vision||Management has articulated a clear vision for the company and how it will create value for shareholders.|
|Winning track record||Management has made previous discoveries and has successfully exited companies in the past, taking shareholders along for the ride.|
|Skin in the game"||Simply put, management owns sufficient shares of the company (not just options) and has the incentive to succeed.|
|Transparency||Management has a history of integrity, being honest with shareholders in every circumstance.|
|Relevant expertise||Management has hired a team that has relevant experience, knowledge, and connections that can help advance the vision.|
|Business mindset||Management has a plan to generate ROI for shareholders and knows how to execute on that plan.|
Step 3: Past Performance
Finally, look to see how the management team in question has handled situations in the past. The following questions will help you evaluate:
- Have they been able to consistently fund projects in the past, even in bad markets, without overdiluting shareholders?
- Is the team well-rounded? Do they have expertise covering multiple fields?
- Did they do what they said they’d do, while sticking to timelines?
- Does the team have connections to major mining companies, major banks, or other important institutions?
- Has the team successfully exited from their previous ventures?
The De-risking Imperative
You can’t control everything that happens in the market.
But by successfully de-risking each management team with these criteria, you can better your odds at success in a high-risk, high-reward market.
This is part 1 of a five-part series on common mistakes made by investors when evaluating mining exploration stocks. Stay tuned for the upcoming parts in the series, covering other topics like jurisdiction, project quality, and more.
The Critical Minerals to China, EU, and U.S. National Security
Ten materials, including cobalt, lithium, graphite, and rare earths, are deemed critical by all three.
The Critical Minerals to China, EU, and U.S. Security
Governments formulate lists of critical minerals according to their industrial requirements and strategic evaluations of supply risks.
Over the last decade, minerals like nickel, copper, and lithium have been on these lists and deemed essential for clean technologies like EV batteries and solar and wind power.
What are Critical Minerals?
There is no universally accepted definition of critical minerals. Countries and regions maintain lists that mirror current technology requirements and supply and demand dynamics, among other factors.
These lists are also constantly changing. For example, the EU’s first critical minerals list in 2011 featured only 14 raw materials. In contrast, the 2023 version identified 34 raw materials as critical.
One thing countries share, however, is the concern that a lack of minerals could slow down the energy transition.
With most countries committed to reducing greenhouse gas emissions, the total mineral demand from clean energy technologies is expected to double by 2040.
U.S. and EU Seek to Reduce Import Reliance on Critical Minerals
Ten materials feature on critical material lists of both the U.S., the EU, and China, including cobalt, lithium, graphite, and rare earths.
|Mineral / Considered Critical||🇺🇸 U.S.||🇪🇺 EU||🇨🇳 China|
Despite having most of the same materials found in the U.S. or China’s list, the European list is the only one to include phosphate rock. The region has limited phosphate resources (only produced in Finland) and largely depends on imports of the material essential for manufacturing fertilizers.
Coking coal is also only on the EU list. The material is used in the manufacture of pig iron and steel. Production is currently dominated by China (58%), followed by Australia (17%), Russia (7%), and the U.S. (7%).
The U.S. has also sought to reduce its reliance on imports. Today, the country is 100% import-dependent on manganese and graphite and 76% on cobalt.
After decades of sourcing materials from other countries, the U.S. local production of raw materials has become extremely limited. For instance, there is only one operating nickel mine (primary) in the country, the Eagle Mine in Michigan. Likewise, the country only hosts one lithium source in Nevada, the Silver Peak Mine.
Despite being the world’s biggest carbon polluter, China is the largest producer of most of the world’s critical minerals for the green revolution.
China produces 60% of all rare earth elements used as components in high-technology devices, including smartphones and computers. The country also has a 13% share of the lithium production market. In addition, it refines around 35% of the world’s nickel, 58% of lithium, and 70% of cobalt.
Among some of the unique materials on China’s list is gold. Although gold is used on a smaller scale in technology, China has sought gold for economic and geopolitical factors, mainly to diversify its foreign exchange reserves, which rely heavily on the U.S. dollar.
Analysts estimate China has bought a record 400 tonnes of gold in recent years.
China has also slated uranium as a critical mineral. The Chinese government has stated it intends to become self-sufficient in nuclear power plant capacity and fuel production for those plants.
According to the World Nuclear Association, China aims to produce one-third of its uranium domestically.
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