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Dear Reader,
It’s been a crazy time for the markets recently.
But amidst the noise…I’ve been putting some plans in place.
In the next few weeks, I’m going to start pulling the trigger on what I call ‘Phase One’ mining stock trades.
That may seem counterproductive…or at the least super-contrarian…given the recent uncertainty in the financial system.
Miners haven’t been immune to the selling, as you know. After the resounding victory of many resource stocks in 2022, the euphoria has had a definite breather in the last few months.
But stick with me.
Phase One miners did more than OK when the markets were in a similar position 20 years ago. And I think we’re seeing a similar set-up now…
What is a Phase One miner?
Put simply: Phase One miners are the true wildcat, early explorers.
The true prospectors.
As a mining company unveils the potential of a mineable deposit…more value is created for shareholders along the way.
But Phase Oners don’t even have a mineable deposit.
They have mostly nothing.
So…there IS no value.
At this earliest stage…it all rests on the geologists. They put their necks…and jobs…on the line. They back educated hunches on where metal deposits are. Yes, they use geochemical and sampling techniques to improve the confidence of the theory…
But it remains a theory.
Until they get that very first strike…
That makes them incredibly risky.
To buy them as a stockholder.
And…to work for as an explorer (I know this first-hand!).
However…
Right now, it’s my contention that those ‘first strikes’ are coming a bit more frequently than they did even one year ago.
Mining exploration is ramping up.
Despite all the ructions in the wider markets.
And some Phase One miners are starting to fizz again.
We’ll explore why that is…and which Phase Ones you might want to look at…in the coming days.
For now, I just want to quickly look at a core factor you need to monitor with these kinds of companies. And all miners in general…
‘Insider buying’
The term itself sounds dodgy and illegal. But it’s not to be confused with insider trading.
It’s actually a lot more straightforward (and legit) than you might think.
Insider buying is when people WITHIN mining explorers…management, team, board of directors, even the geos out in the field doing the exploring…start buying the company’s shares on the open market. Or get involved in a new equity financing round.
The consensus is that insiders tend to only load up if they are confident in the company’s prospects…and think the shares might be worth a fair bit more down the track.
It’s by no means a perfect science.
Especially when it comes to the really small exploration stocks.
But I’ve been tracking this activity recently, and some interesting stuff is going on…
Galan Lithium [ASX:GLN] non-executive director Daniel Jimenez just bought 105,000 more shares in the company. He now holds 2,447,713 fully paid ordinary shares. And 1 million options expiring 8 October 2023.
That comes after a bunch of insiders loaded up on Evolution Mining. Including its own non-exec director picking up another $244k worth of shares.
It really pays to monitor directors’ buying and selling activity for additional confirmation that the company is in a strong position.
After all, what director would buy shares in their own company if they believed the price was about to fall?
Directors have a better understanding of their business and its future growth prospects. They also have a vested interest in its success.
By uncovering who’s buying and selling shares in their own company, investors can extend their scope of research beyond fundamental and technical analysis.
This is not a unique or ‘hidden secret’, but very few investors actually implement it as part of their selection criteria.
Develop Global [ASX:DVP] CEO Bill Beament used his Northern Star windfall to take up a massive stake in DVP.
It means he now owns more than 100 million shares, equating to around 16% of the company’s entire capital.
Beament, a successful mining insider, has a strong vested interest in the company’s future success.
You won’t always see insider activity like this, but when it happens, it’s a signal for future strength and can provide additional confirmation to your analysis.
It works on the flip side, too; when directors sell shares it CAN signal future weakness. Not all selling is bad, though.
At times, a director may sell some of their capital to fund personal expenses or reduce their exposure to just one investment.
However, if I see a pattern of multiple directors selling at once, this raises a red flag for me.
There are some conflicting signals with insider buying right now.
But…for me…it fits into a wider pattern of what I see about to happen in the whole commodities space…
…and Phase One explorers in particular…
More to come…
Regards,
 |
James Cooper,
Editor, Money Morning
