Gold miners will have to acquire new projects in 2015 and 2016 if they intend to stay in business.
This from Brent Cook, economic geologist and the editor of Exploration Insights, a respected mineral exploration investment research service.
A dearth of new economic discoveries, reluctance to make acquisitions, the “high-grading” of existing mines, and cuts to exploration and development expenditures over the past three years are the key reasons for Mr. Cook’s thesis.
By 2015 and 2016 the boards of these companies will “wake up to the fact” that they are running out of new projects to replace their declining gold mines.
“At that point there’s maybe a dozen projects out there that they are going to want,” Mr. Cook told CEO.CA in a Skype interview.
The fact that Mr. Cook has been cautious and very selective in the junior mining market since near the top in 2011, and has remained so throughout the bone crushing three year period that followed, lends some credibility to his investment style and prediction.
With a view that the market for high quality development stage gold projects is tightening, Cook says he will not be selling in May and going away this year, despite historical evidence which suggests junior mining equities typically trade lower during the summer.
"I don't want to sell the best with the expectation that they will fall and I can buy them cheaper. If I sell them, what else would I buy? I can deal with the volatility and am positioned to add to my positions should the market provide the opportunity."
The economic geologist and newsletter writer has been working in new project generation within the gold mining industry for the past 32 years.
Cook’s global field experience enables him to monitor and interpret exploration data faster and more closely than others in the market.
“It’s important for any investor to identify the fatal flaw in a project as quickly as possible. If you can do that you save yourself a lot of time and money, and if you can’t find the fatal flaw, that’s the project you hang on to.”
Our conversation turned to the science behind mineral exploration. Cook believes “boots on the ground” and the “grey matter between a geologist’s ears” are the most important tools for finding new mines. He is less keen on computerized modelling driving the interpretation and exploration of mineral projects.
“Geology is an intellectual science that is very subjective. Allowing a computer to do the work takes out the most important thing that a geologist does, that is drawing a contact between one rock type and another. That intellectual decision results from years of experience and a hunch that will never be replicated by a computer program.”
Cook spent the first two decades of his mineral career in the field, and recalled one of his first experiences with the Vancouver finance side of the business in the mid 1990s.
A few hours into a three week field exploration assignment at a gold project in Brazil’s Amazon Cook knew the asset he was working on was a dog.
However the promoter behind the project soon arrived with a helicopter full of investors who were all told a wonderfully optimistic story about the project’s potential, oblivious to the obvious.
After just a couple of hours on site, the investor tour went piranha fishing, leaving Cook behind to toil away on the lousy project in the harsh Brazilian jungle.
Later, Cook learned that the share price of that company actually went up following the investor tour.
“They made money and got to go fishing?” Cook recalled thinking at the time. "I figured it was time I learned what that was all about." He subsequently joined Rick Rule’s team at Global Resource Investments (now Sprott Global) as their in house exploration analyst.
Following a productive period advising Mr. Rule’s funds, Cook struck out on his own as an independent research analyst for the sector. He established Exploration Insights in 2008 and just a few years later EI has become a must read by mining investors in the know such as Mr. Rule, who told us Mr. Cook does an “anomalously good job as a newsletter writer.”
There are currently 21 stocks in the Exploration Insights portfolio. 7 are early stage idea generators with solid management teams, and the rest are “the best” development stage deposits.
Mr. Cook is “very pleased” with the small but active subscriber base Exploration Insights currently serves, and says he has little interest in building a big newsletter business with lots of different products.
"Why would anyone pay for my second best ideas? Nod Nod, wink wink. That to me is bullshit. These are my best ideas and this is what I’m doing with my money."
Mr. Cook, 59, says he is at the stage of his career where he works for the thrill of it. "I still want to be able to identify very early on legitimate discoveries that are going to be significant to the company and my pocketbook."
We strongly recommend readers sign up for Brent’s Exploration Insights service. Many major miners already do, and if Brent is right, they will be acquiring the companies covered by the EI letter over the next couple years.
Subscribers get immediate access to a searchable database of all previous editions of EI, an invaluable database of junior mining research, and Brent does his best to respond to all subscriber feedback personally.
You can also meet Brent at the upcoming Cambridge House Canadian Investor Conference in Vancouver June 1-2, 2014.
Disclaimer: This article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be — either implied or otherwise — investment advice. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Brent Cook, Tommy Humphreys, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in this article
