As I detail to my paid readership, investors are continually hit with big headlines like ‘major find’ or ‘exceptional results.’
But for the most part, they’re not.
So, as a former geologist heading up an investment advisory service focusing on mining stocks, it’s my role to distil the chaff.
Is the drill hit meaningful, or is management trying to increase the company’s profile?
Often it’s the latter.
But even as a former geo who’s written these market reports in the past, filtering the good news from the rubbish is still not simple!
Take gold exploration…
This is one of the most complex minerals for explorers to interpret.
Faulting and other geological structures tend to displace mineralisation in different directions. One big gold hit doesn’t necessarily translate into a mine.
It’s why I highlight ‘continuity’ as the most critical aspect to successful exploration.
For a project to be profitable, you can’t have strong grades over a small area; you need moderate mineralisation over an area large enough to accommodate enormous excavators and other mining equipment.
Without scale or continuous mineralisation, mining isn’t feasible.
So, how does an explorer prove these characteristics for shareholders and come up with the goods?
Drill, drill, drill!
That’s the element that turns one or two drill hits into something real, a tangible deposit that can be economically mined.
But drilling is capital-intensive, meaning projects often sit idle for months or years, waiting for that next cash injection.
And that brings us to one of the key strategies I want to focus on today…
Explorers with a ‘Self-Funding Model’
Companies actively drilling but have access to cash flow are rare in the exploration business, but they hold a huge advantage.
And that could be especially important right now.
Volatility reigns in 2025, so liquidity will remain tight for the junior mining sector.
That means investors need a strategy that keeps them in companies that can continue exploring.
And that’s where ‘cashflow’ juniors could play a key role.
Cash is the lifeblood that enables juniors to continue exploring despite tight liquidity conditions.
And there’s an additional advantage…
Cash flow means companies don’t need to return to shareholders and raise more capital on the stock market, which means less shareholder dilution.
I’ve always advocated this self-funding model for my paid readership group, which is why several of our junior mining recommendations have unique cashflow streams.
This can take the form of mining services.
Contracting out expertise or machinery to generate service-based revenue so that the junior can fund drilling or development at its operation.
I like companies that can be creative and think outside the sector’s usual practice of exhausting shareholders with endless capital raises.
Royalties are another strategy that some mining juniors use to generate cash.
Often, this is born out of a joint venture or sale of land tenure that might include a combination of cash, equity, or rights to future royalties from mining.
These arrangements aren’t common, but they do exist.
Creative revenue streams that can fund exploration. That’s the golden goose.
But it’s also critically important…
Whichever way global markets gyrate, these explorers will continue to get their monthly payout.
Rising volatility and ongoing liquidity issues across the junior mining sector mean these companies can continue hunting for deposits, while their cash-starved peers move into hibernation.
And that’s perhaps the key element here
You see, you can’t make a discovery if that project suddenly pauses, like when cash runs dry.
I’ve seen it happen. No matter how good the project looks, grades, size, etc., it WILL fall into a death spiral once the rigs stop spinning.
Liquidity drying up is the death knell of exploration projects.
Consistent funding in exploration is rare, but it’s the critical ingredient that leads to the construction of new mines.
And this is leading to a major problem in the resource sector today…
You see, the major mining firms once led exploration, using their deep pockets to fund important exploration projects when conditions became tight.
That enabled them to explore, find, and build giant global projects… Operations that would spit out ore for decades.
However, as I’ve detailed in previous updates, the majors have long abandoned their meaningful contribution to exploration.
They’ve lost the appetite for risk.
And that’s why they’re now so concerned about future supply.
Until next time.
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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