Saturday, December 4, 2010

life cycle of the typical mining stock

source: Zimtu Capital Corp. = one of my portfolio companies. btw, zimtu's strategy is to enter the opportunity before the IPO ;-)

folks, mining is soooo exciting, u know? wanna read abt my investment approach?

1.) how 2 choose stocks 2 buy? 

a) well, i follow the markets daily and i also attend a lot of commodity oriented events like the precious metals fair, other (smaller) commodity shows, investor lunch events for few (approx 10 - 20) invited folks and the like. leftovers is easy, i buy stocks i liked most  ... my decisions are based basically on my impression or personal criteria like e.g. company's partners & investors [when folks like rob mcewen, eric sprott, paulson, soros, silver wheaton, pan american silver, xstrata and the like are also invested i believe its almost risk free 2 get involved myself ] ... i dont look-up the company website, financial news, earnings reports and the like at that stage ... of course, im easy 2 impress i think ... after the 1st small 'pilot' buy i subscribe companies newsletters, start following their development and if appropriate i increase my positions 

b) my 2nd decision method: i scroll down my portfolio sorted descending by current position value and where my eyes 'stops' thats the stock i increase my holdings in ~ ie intuition again 

2.) most potential for long term gains?
i think its the explorers & junior mining stocks

3.) why explorers & junior mining stocks?

well, this one is the easiest one! its based on the 'life cycle of the typical mining stock' [~ idea => IPO => discovery => a looooong development period i.e. the 2nd chance 2 buy these stocks cheap => production & cash-flow & dividends = the boring fat cat phase of stock's life] 

btw, wanna look-up the mining ABC issues?

ps: ist there any risk involved? yep, of course there is a huuuuge risk involved: the discovery isnt good enough (too low metal grades, too small overall amonunt of the commodity contained, etc), mngmt not able 2 raise enough money 2 build-up a mine, legal/environmental issues, political risk (congo, ecuador, venezuela, russia, ...), management failure, sometimes even pure fraud (eg the only 'asset' is an advertising/promotion campaign), drop in commodity prices so that the production isnt economical anymore and a lot of similar stuff ... well, thats why i own 100+ mining companies and tend rather 2 increase my existing positions in the good ones than 2 buy a new strongly promoted company, u know?

anything else? hmmm, probably one famous quote about the gold mining industry / stocks:

gold mine is a hole in the ground with a liar at the top ~ mark twain


Inventory POS System said...

I like your article and it really gives an outstanding idea that is very helpful for all the people on web.

jaro gruber said...

thx :-)

alexandra mazzant said...

Great information :) thanks

May God continue to bless you !!

jaro gruber said...

hello alexandra,

i'm glad my article may help you in some way in your evaluations / decisions :-)

good luck,
jaro :-)