Mining 101The thing people do not understand about mining is that when you are mining at or near the cut-off grade, after all your taxes, fees, salaries, and overhead, you make no money, in fact you are losing money after capex, especially discounted for time. If you are exploring at or near the cut-off grade, then you are only dreaming of losing money in 10, 15, or 20 years' time, maybe 30 the way things are going with permitting, endless studies and infrastructure development, and political wrangling at all levels of government and the locals near whose home you are drilling and blasting and creating all manner of trouble. Well let me tell you this, the vast majority of junior explorecos promoting their mining "project" have sub-economic mineralisation that they are pretending they are advancing to production. But they never go anywhere because they are not good enough, and no one will give them money to build it, so they issue endless paper to the poor faithful for tomorrow's promise. When metal prices rise, the stocks go up, because people think they are more profitable, but in fact costs go up with inflation, especially mining inflation in a mining boom. And then they just crash again.
So if you want to simplify your life and profit in this miserable industry, just do yourself a favour and concentrate on the very greatest and richest ore bodies, run by the best people, and buy them when the sector is out of favour. If you see a demand or supply trend which is under-appreciated in the market, this can be exploited because these large global metals markets are too big for smart money to corner, and tend to be very short-term oriented, just like the vast majority of investors of every stripe in every market everywhere.
Now if you like to trade and you are nimble with market sense, maybe you can operate thusly. Or you have a half-baked theory about some minerals concentrating in some random place tens or hundreds of millions of years ago, and you will either be lucky or get out before everyone else realises it's a dud. This can work. But if you are of the value school, what could be better than massive high-grade reserves at a steep discount? How about, run by the best management team in the business? By the way, did anyone notice, the Congo is a friendly mining jurisdiction? If you invest, we permit. A highly-qualified, competitive labour force. Treasure-laden reefs full of heavy metal with profits oozing out of the country rock. Taxes are negotiable. But no, because we are reading headlines about how this politician said this or that or there were some protests or an actual tragic humanitarian crisis which is very sad and gut-wrenching, but has absolutely no bearing on business fundamentals. So we go home to our little penny stock run by a two-bit Howe Street promoter with a trillion stock options outstanding and one press release a year, some phony accounting, and a "100%-optioned" property in the frozen arctic tundra 500 km from nowhere with some 60-year old drill results by Cominco showing 1.8 metres of a gram and a half of gold including 0.4 metres of 2.3 grams gold wrapped in arsenopyrite 600 metres under permafrost. After all, the rhododendrons are lovely in July, at almost five degrees. And for heaven's sake, at least it's in a safe jurisdiction! Oh, except that it's claimed by seven Inuit tribes and not to mention...polar bears!
The point is, if you simply look around and see who is successful, your Warren Buffetts and your Robert Friedlands, who by the way tell you everything they learned with their huge brains working tirelessly through their very long careers, it is all very simple. And then you have TopAdvisor who found out what worked in investing, and knew this was a $15 stock when it was trading for 60 cents, and is trying to explain it to all of us lame brains and small fry, and crypto-Johnny the hotshot litigator trying to help out the poor heathen socialists, or Bloomfield the angrier-than-the-angry-geologist, who is strictly by the numbers, and very conservative and sceptical, for he has seen the true colours of Howe Street, but who realises, hey, this stock is just too cheap.
The clever ticker trackers here will know whether the next wiggle will be down a nickel or up a dime. Jesse Livermore called them tapeworms. By the way, for the new investors, if you haven't read it, go to Chapter V of Reminiscences of a Stock Operator and read the story about Old Turkey. You will never get a better lesson in the share market. I say this because, nobody taught me anything, so I paid my tuition. Now we are supposed to be competing, but it is not really like that. It is just too wonderful to laugh at this divine comedy on the Stock Exchange. Warren and Robert realised long ago that they have all they need, and whatever they know they will share. The rest is for glory, and the love of the game. No one really listens to them anyway, why would they listen to me?
But just to belabour the point a little more, because I know you're just riveted by this meandering stockboard rant... if you think this stock is high, and run to far too fast, the story is long in the tooth, and this market is getting toppy, then you have never experienced a mining cycle. The kind of market which gives rise to the phrase, "in strong winds, even Turkeys can fly." When there are acute metal shortages, and consumers are panicking trying to think of ways to thrift or build up stock piles before prices go even higher, or there is talk of peak this or peak that, and every low-grade producer has cash flow gushing out of its ears and banks are tripping over themselves trying to lend money in resources, which is the safest credit in a world of high demand and short supply. And conservative, wily old-world CEOs at blue chip firms are staking random turf in Zambia for 9 billion bucks on a hunch. Now that's a bull market. No one remembers now because producers have been subsidising consumers for years, and everyone has been sitting with their dogs with such sorry-looking charts being bled to oblivion, or sold out, because it is just too grim. But just as the night is long, so the sun rises. And this is what the chairman was alluding to, as someone pointed out. The Miner's Revenge.