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Investing in “discovery plays” may be a familiar concept for the seasoned natural resources investor. Within the junior mining exploration sector, the opportunity to invest in a discovery stock requires a fine balance of knowledge and the right timing, as well as experience. New discoveries face plenty of challenges so initial drill hole or surface trench results can be a key indicator as to the potential significance of a deposit.
Steve Todoruk is an investment executive as well as a geologist by training with Sprott Global. He has spent four decades in the mining industry gaining experience wearing different hats and has a track record of success identifying many of the significant discovery plays and getting his clients involved very early on around the time of their discovery announcement. Among Todoruk’s investments that have returned positive financial gains: Aurelian Resources, Virginia Gold, Hathor Explorations, Ventana Gold, Reservoir Minerals, Alpha Minerals, Kaminak Gold, Underworld Resources and Mariana Resources.
THE BIGGER THE REWARD FOR THE EARLY BIRD INVESTOR
Todoruk believes that the best time to invest in small exploration companies is when a new discovery announcement has been made. Considering that the discovery odds are stacked against the junior companies it is important for investors to be patient. Out of the one thousand-plus companies that hope to make a bona fide discovery, the mining industry might see three to five good discoveries in a given year.
If a junior company does manage to make a good discovery – then it is an opportune time for the investor to buy shares. Yet, Todoruk says the junior company still has a long way to go in its journey to success. It will have to continue drilling and grow its deposit which requires capital. This is a time-intensive process that usually takes two to three years of drilling. If the end result is positive, then a valuable asset has been created for the marketplace.
As with any asset, a junior mining company’s market capitalization will reflect the “constant revaluing and rerating” of the company. Toroduk says an investor can realize a significant financial reward if a big mining company takes over and acquires the junior miner acquiring their new deposit.
Even the best application of an investment strategy does not guarantee a positive outcome. Todoruk has witnessed his fair share of disappointments in the junior mining space including Colorado Resources after they drilled a potential discovery drill hole but follow-up drilling amounted to what is referred to as a “one hole wonder.” Geological knowledge about a discovery can help in determining whether it will be a success or not – but that is not always the case.
Todoruk also proffers that investing in the high-grade discoveries is not about banking on rising precious metals prices. He prefers to see metal grades that could be mined profitably at current metal prices and even better – at lower metal prices. If metal prices do rise from their current levels, Todoruk expects the key discovery plays to lead the charge in terms of share price.
Sprott Media’s Albert Lu sat down with Steve Todoruk to discuss the outlook for the juniors and how to spot a good discovery: click here.
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