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.
Sprott U.S. Media, Inc. is a wholly owned subsidiary of Sprott Inc., which is a public company listed on the Toronto Stock Exchange and operates through its wholly-owned direct and indirect subsidiaries: Sprott Asset Management LP, an adviser registered with the Ontario Securities Commission; Sprott Private Wealth LP, an investment dealer and member of the Investment Industry Regulatory Organization of Canada; Sprott Global Resource Investments Ltd., a US full service broker-dealer and member FINRA/SIPC; Sprott Asset Management USA Inc., an SEC Registered Investment Advisor; and Resource Capital Investment Corp., also an SEC Registered Investment Advisor. We refer to the above entities collectively as “Sprott”. The information contained herein does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Forward-Looking Statement This report contains forward-looking statements which reflect the current expectations of management regarding future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as “may”, “would”, “could”, “will”, “anticipate”, “believe”, “plan”, “expect”, “intend”, “estimate”, and similar expressions have been used to identify these forward-looking statements. These statements reflect management’s current beliefs with respect to future events and are based on information currently available to management. Forward-looking statements involve significant known and unknown risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievements could vary materially from those expressed or implied by the forward-looking statements contained in this document. These factors should be considered carefully and undue reliance should not be placed on these forward-looking statements. Although the forward-looking statements contained in this document are based upon what management currently believes to be reasonable assumptions, there is no assurance that actual results, performance or achievements will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this presentation and Sprott does not assume any obligation to update or revise. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any fund or account managed by Sprott. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any fund or account managed by Sprott will be invested. Past performance does not guarantee future results. The views and opinions expressed herein are those of the author’s as of the date of this commentary, and are subject to change without notice. This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested. Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment. Because of significant volatility, large dealer spreads and very limited market liquidity, typically you will not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.