When looking for an investment, the approach I take involves looking at the overriding global - big picture - conditions. I study trends, read the news, basically watch and listen to what’s going on in the world. Then I study the different sectors in order to select the one that I think is going to match up well with, what I think is, the soon to be overriding theme. This is top down investing.
The second part of my search for the dominant investment is a bottom up approach. This is where I find individual companies in the specific sector I have chosen to invest in. I pick the company I want to invest my money in based on the quality of its management team.
Everything about a company flows from management - the ability to find a project or have projects or joint ventures (JV) offered to the company, development of the project in a timely efficient manner, financings done at a higher and higher share price, control over the share structure along with management interests aligned with shareholder interest.
If you’ve done your homework all the necessary ingredients for a potentially successful investment - the right place/time and a high quality management team with projects that need to be worked - should be in place.
Access to raw materials has become essential to the functioning of all industrialized economies. Threats to access and distribution of these commodities could include:
- Political instability of supplier countries
- The manipulation of supplies
- The competition over supplies
- Attacks on supply infrastructure
- Accidents and natural disasters
- Climate change
Every country imports and exports raw materials to one degree or another.
As raw materials are the essentials for a country’s survival, development and progress, everyone is looking for permanent, secure suppliers. A very worrying, and growing trend, is that countries rich in resources are limiting the availability of raw materials - commodities that are the building blocks of modern societies - in order to support their own industries. Such export restrictions could start confrontations over scarce resources.
Countries can restrict the export, or subsidize the import of, raw materials by means of:
- Export taxes
- Export licenses and or quotas
- Operating dual pricing schemes
- Subsidizing the import or local purchase of raw materials
We’re heading to a very inflationary environment. US President Obama is promising trillion dollar deficits for years to come and the US dollar is still the world’s reserve currency. With all exporting countries trying to keep their currencies weaker then the US dollar - to make their exports competitive - the inflation rate is going to rise much higher.
Whenever governments are creating money and spending to excess, inflation rears its ugly head and investors move into hard assets. The best hard assets to buy during these periods are commodities.
Our reality is we’re living on a relatively small planet with a finite amount of resources, climate change is increasingly playing a role and we have a growing human population. Accessing a sustainable, and secure, supply of raw materials is going to become the number one priority for all countries.
There’s no doubt in this author’s mind we are going to see much tighter supplies of, and higher prices for, commodities.
It’s a fact in the mining world that most discoveries are made by a) junior mining companies and b) old time individual prospectors.
If I was looking for superior investment vehicles to take advantage of what I think I know regarding the future for commodities I’d be looking at junior resource companies involved in the search for, and development of, the worlds future sources of commodity supply.
Junior resource companies own, and find, what the world’s major mining companies need to replace reserves and grow their asset base.
Junior resource companies serve an important role in the commodities markets – they feed the supply chain – and in this author’s opinion, junior resource companies offer the greatest leverage to increased demand and rising prices for commodities.
Altair Ventures Inc. (TSX: V.AVX, Stock Forum)
Altair is anticipating the results of its December 2010 drill program on the Northeast Extension Zone of its Prospect Valley project to be available soon. Once the results of the drill program are received management will decide the next phase of activity.
Caza Gold Corp. (TSX: V.CZY, Stock Forum)
Caza Gold raised $2.8 million in its initial public offering (IPO) and started trading on November 22nd 2010.
Cariboo Rose Resources Ltd. (TSX: V.CRB, Stock Forum)
Major programs are expected from Gold Fields on both Woodjam North and South in 2011 - Gold Fields is currently finalizing their 2011 program. In 2010, total expenditures by Gold Fields for both properties was $4 million dollars.
Total drilling at Woodjam North for 2010 was 14,613 meters in 55 holes. Drilling is scheduled to commence on the Deerhorn Zone and the Megabuck East Area in February.
During 2010, Gold Fields completed 7,290 meters in twenty holes on the Woodjam South copper-gold-molybdenum property. The Southeast Zone currently has an 800 meter by 630 meter footprint and is open to expansion in all directions, including depth. Drilling is expected to resume in January.
Cariboo Rose’s Woodjam (North and South) project had approximately 21,908 meters of drilling in 2010 - making it the third largest drill program in BC for last year.
Canadian International Minerals Inc. (TSX: V.CIN, Stock Forum)
CIN continues to wait for the delayed assays from nine drill holes at what management believes to be a significant rare earth elements (REE) discovery on the Company’s Carbo property north of Prince George, BC.
Great Panther Silver Ltd. (TSX: T.GPR, Stock Forum)
Great Panther Silver Ltd. had record 2010 production of 2,255,802 silver equivalent (Ag Eq) ounces, a two percent increase over 2009. New records were established for the output of all metals - 1,534,957 ounces silver, 7,216 ounces gold, 1,092 tonnes lead, and 1,358 tonnes zinc.
Conclusion
The bull market for junior resource companies started in 2002 and temporarily ceased in 2007/2008. This author believes that we are today, on the cusp, of a long term bull market run for junior resource companies.
Are there a few junior resource companies, with exceptional management teams, on your radar screen?
If not, maybe there should be.
Richard (Rick) Mills