Management: good readManagement: Do the Litmus Test
It shouldn’t come as any surprise that good management can spell the difference between success and failure. So how does one determine if management is good or bad?
First and foremost past success is arguably among the best litmus tests for gauging management, although it’s certainly no guarantee. In this Internet age, regulatory filings and Google searches can often reveal a library of information on specific individuals and corporate entities.
A good CEO with a track record that includes at least one notable success generally has the ability to attract risk capital because people like to bet on a jockey that’s won a race already. In addition to having market recognition from past successes, they often tend to be magnets for high quality exploration projects.
Most investors in this market sector have observed seemingly well qualified management ruin good exploration companies because of bad technical judgements and even poorer market decisions. In the latter case, non-market oriented executives often forget that markets and exploration-related activities are closely aligned - if not joined at the hip. Those who manage one without paying attention to the other do so at their peril.
These days it’s quite uncommon for industry executives to have a personal investment in the companies whose future they control. Instead, they elect to take large salaries and award themselves cheap stock options which are typically re-priced lower when the company’s stock price reflects their lack of success.
Executives who are willing to risk their own money with ordinary shareholders have an added incentive to be successful. In old fashioned terms, it’s called “putting your money where your mouth is” - a lesson that unfortunately is largely ignored by most contemporary mining executives. Their shareholding need not necessarily be large but it should at least be meaningful.
It’s also wise to look for management with a broad knowledge of the minerals industry and capital markets, both of which are integral to running a successful company. These attributes need not be exclusive to the CEO but they should feature prominently within the corporate management team including the board of directors.
Senior executives don’t necessarily have to be geologists or engineers but they should at least have the ability to attract, manage and motivate a multi-disciplined group of industry professionals who share the corporation’s philosophy and objectives. Who can forget Paul Penna who brokered penny stocks in Toronto before he became the guiding force and chief executive behind one of the most successful mining companies in the world, Agnico-Eagle?
Personal integrity and the ability to communicate the company’s message to shareholders and the marketplace round out the critical attributes that one should look for in public company management.
Summary:In the minerals business, past performance is often a good indicator but not a guarantee of future success. Pick management with strong track records and preferably at least one notable success (i.e. mineral discovery). The ability of management to raise capital to fund the company’s activities on an ongoing basis is also critical as the price of any exploration company’s stock is results driven - and getting those results costs money.
Management integrity can be determined by examining the way a company conducts its business, especially in foreign jurisdictions. In the case of developing economies, this would include a strong commitment to the principles of sustainable development.
Also, one should keep in mind that a company can be a success in the marketplace without taking a project to commercial production. In fact, the majority of mineral explorers never achieve such a distinction, selling out instead to an operating company with production expertise, perhaps retaining a royalty in future production.