Video: Equity Financing in the Mining Exploration Sector
Mining exploration is a notoriously capital intensive sector. Because companies typically generate no or little revenue, they must go to the capital markets with the lure of creating the next big economic discovery.
These dynamics create the risk and reward in the sector that make it unique, but they also create a barrier to entry for average person. Many regular investors that trade stocks and mutual funds do not know how private placements, warrants, or hold periods work.
About a year ago, we worked in conjunction with VADAR and Cambridge House to create this video (and the infographic below) to educate investors on the nuts and bolts of raising capital in the mining sector.
All the World’s Metals and Minerals in One Visualization
This massive infographic reveals the dramatic scale of 2019 non-fuel mineral global production.
All the World’s Metals and Minerals in One Visualization
We live in a material world, in that we rely on materials to make our lives better. Without even realizing it, humans consume enormous amounts of metals and minerals with every convenient food package, impressive building, and technological innovation.
Every year, the United States Geological Service (USGS) publishes commodity summaries outlining global mining statistics for over 90 individual minerals and materials. Today’s infographic visualizes the data to reveal the dramatic scale of 2019 non-fuel mineral production.
Read all the way to the bottom; the data will surprise you.
Non-Fuel Minerals: USGS Methodology
A wide variety of minerals can be classified as “non-fuel”, including precious metals, base metals, industrial minerals, and materials used for construction.
Non-fuel minerals are those not used for fuel, such as oil, natural gas and coal. Once non-fuel minerals are used up, there is no replacing them. However, many can be recycled continuously.
The USGS tracked both refinery and mine production of these various minerals. This means that some minerals are the essential ingredients for others on the list. For example, iron ore is critical for steel production, and bauxite ore gets refined into aluminum.
Top 10 Minerals and Metals by Production
Sand and gravel are at the top of the list of non-fuel mineral production.
As these materials are the basic components for the manufacturing of concrete, roads, and buildings, it’s not surprising they take the lead.
|Rank||Metal/Mineral||2019 Production (millions of metric tons)|
|#1||Sand and Gravel||50,000|
|#3||Iron and Steel||3,200|
These materials fertilize the food we eat, and they also form the structures we live in and the roads we drive on. They are the bones of the global economy.
Let’s dive into some more specific categories covered on the infographic.
While cement, sand, and gravel may be the bones of global infrastructure, base metals are its lifeblood. Their consumption is an important indicator of the overall health of an economy.
Base metals are non-ferrous, meaning they contain no iron. They are often more abundant in nature and sometimes easier to mine, so their prices are generally lower than precious metals.
|Rank||Base Metal||2019 Production (millions of metric tons)|
Base metals are also the critical materials that will help to deliver a green and renewable future. The electrification of everything will require vast amounts of base metals to make everything from batteries to solar cells work.
Gold and precious metals grab the headlines because of their rarity — and their production shows just how rare they are.
|Rank||Precious Metal||2019 Production (metric tons)|
While metals form the structure and veins of the global economy, ultimately it is humans and animals that make the flesh of the world, driving consumption patterns.
A Material World: A Perspective on Scale
The global economy’s appetite for materials has quadrupled since 1970, faster than the population, which only doubled. On average, each human uses more than 13 metric tons of materials per year.
In 2017, it’s estimated that humans consumed 100.6B metric tons of material in total. Half of the total comprises sand, clay, gravel, and cement used for building, along with the other minerals mined to produce fertilizer. Coal, oil, and gas make up 15% of the total, while metal makes up 10%. The final quarter are plants and trees used for food and fuel.
How to Avoid Common Mistakes With Mining Stocks (Part 1: Team)
Mining stocks are high-risk, high-reward. Here’s what you want to see in a management team, and some of the characters you want to avoid.
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.
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