September 21, 2023
Recently, we walked you through the core investing principles that mining investors use. You can find the previous "Rules of Thumb" pieces here:
In this article, we will dig deeper into the most critical part of the investment process—evaluating the management team.
Even a great project can be ruined by an incompetent team. On the other hand, a skilled management team can make even a technically challenging project work. Or at least add enough value to it so it can be sold to a willing investor.
The core concept that we will explore here is flexibility. If a team isn’t flexible, it will stick to a predetermined scenario (or fall in love with a project for whatever reason) and try extracting value from it when the project has none or very little of it.
In this article, we’ll show you how to evaluate the team of a company working in the mining sector.
1. Track Record
Past performance is the single best indicator of a team’s quality. It may not guarantee future success, but in our experience, it tends to increase its probability.
If the people at the helm have a number of world-class achievements in their bios, excellent. They clearly know what they are doing.
They may discover a world-class deposit, develop a mine on time and on budget, or even be able to run a profitable mining operation. Or secure deals that directly benefit investors, such as selling a company at a premium or acquiring an underappreciated asset and turning it around.
Management profiles will be a great place to start. You can see what companies the leadership was working for and when. Check how those earlier ventures’ share prices did during their tenure, too.
You can find a list of Canadian mining superstars at The Canadian Mining Hall of Fame. These are experienced professionals worth following.
2. The Right Skill Set
Make sure the people in charge are doing what they are good at. Geologists should be exploring for valuable minerals. Minebuilders should be developing mines. Mine operators... you get the idea.
If you see a geologist trying to build a mine, that could be a red flag. Or someone with a financial background calling the shots on where to drill. This multi-tasking almost never goes well, except by chance.
A company’s CEO or Chairman can be a great businessman. Not a technical person, but a leader with a team of brilliant people with the right skills. This is the best scenario.
More on this below.
Even the best team with a solid project and a work plan needs funds to deliver.
Raising funds may be tricky. It requires experience in the capital markets. The best executives have to act in the interest of their shareholders. They should only raise funds when needed, preferably at high share prices.
Attaching multiple warrants with extra-long expiration terms is dilutive for existing investors. If you see a company raising funds at 52-week low prices with one or two 24-month warrants attached, it’s a red flag. This company is likely desperate, which is not a good sign.
It is even worse if the company pays its bills or debt with shares. Stay away from these situations.
4. Going the Extra Mile
Mining projects are often remote. They will have camps to accommodate the team, but you won’t find a five-star hotel in the middle of a jungle in Colombia.
This may sound odd, but it’s worth checking where the management lives and how often they go to the project. Some are moving to nearby towns just to have easy access to the property. This is the best practice in the sector.
However, some executives have never been to the project or maybe visit it once a year. We doubt they will know a lot about it. Unless they have everything under control with a world-class team in the field, this lack of boots-on-the-ground experience is something to avoid.
These are the crucial things worth checking. As an investor, you can try to reach them via phone or email. One proven way is to attend mining conferences where you can talk to multiple companies at once.
This way, you can see if you trust the people who run a company you’re considering. Do they have a solid work plan and everything ready to execute it? It will help you decide whether you are ready to put your hard-earned money into the company.
You will also pick up nonverbal cues when you talk to the team, which is something that you won’t be able to do if you rely only on published (and very polished) press releases and slide decks.
Not every investor has this much time on their hands, however. This is why we are here, and we look forward to continuing to share our experience with you.
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Disclaimer: This report is for informational use only and should not be used an alternative to the financial and legal advice of a qualified professional in business planning and investment. We do not represent that forecasts in this report will lead to a specific outcome or result, and are not liable in the event of any business action taken in whole or in part as a result of the contents of this report.
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