I toured a mine site earlier this week. It was in a less explored region near Paraburdoo in Western Australia.
I went on this trip as a non-executive director of a listed company (not on the ASX) with a world-renowned geologist who owns the property and entered a joint venture with us. We were there to see the drilling and track its progress. A videographer joined us to capture the action.
Here’s some of the footage of us travelling on the helicopter across the Western Australian wilderness:
But I want to tell you about who was involved. Picture this…
We had on the plane a geologist and me, a company director with a finance background, inspecting the mine site and reviewing its progress.
One has the responsibility to scope out the terrain and identify whether there’s potential for valuable minerals beneath the ground. The other studies company reports and public data to find which companies are likely to deliver a profitable outcome.
You could say the contrast couldn’t be more striking. The geologist is key to conceiving the company’s value by finding the deposits. The financial analyst pores through the curated data of the company to search for potential to earn a profit from market mispricing. We were on the opposite ends of the value creation process.
Our mutual recognition of this contrast made for great conversation topics throughout the trip.
When we were waiting at the airport in Perth to fly to Paraburdoo, the geologist and I had an interesting conversation about who was the most important component of a successful mining company.
If you’re not aware, a mining company usually comprises the board and management, the geologists, mine engineers, project managers, the finance and administration team, the marketing team, ground staff, and so on.
There’s no correct answer to this question of course. However, the debate exposes a lot of things every investor needs to know. That’s what I want to bring out in today’s article.
The journey’s originator
The geologist spoke about why he is the most important member in the team.
Now, let me state clearly this: he didn’t say this to talk his own book. Nor did he do so to brag about his achievements. Which are awe-inspiring.
His reasoning was as I mentioned above. The geologist scopes out the terrain to identify where a valuable mineral deposit is most likely to occur. They guide the team into deciding where to invest capital to survey, explore, drill, and develop the ground.
I’d tend to agree with his answer. You may have heard of a well-known saying that you can change a lot about a mining company, but you can’t change what’s beneath the ground.
Put another way, what is beneath the ground is fixed, at least for many hundreds of years, if not more. It’s our job to find them and potentially exploit them.
I’d say that the geologist is the originator of the story and journey. It begins there. It leads to the rest.
That’s a critical role. But it’s only the beginning.
Packaging a winning narrative
When we landed at the mine site, we met the site manager, project manager and the drilling team. We checked out the base camp, the drill rig, and some core samples.
I struck up a conversation with the project manager, who had a geophysicist background. Now, there are subtle differences between a geologist and a geophysicist. To the best of my knowledge, a geophysicist studies the structural dynamics of what’s on and beneath the ground. It focuses more on a particular aspect of geology.
I brought up the topic about what were his thoughts of the most important component of a mining company. Now his answer wasn’t on his expertise. He points to the marketing team as being most important.
Now you may agree with him about this. Especially if you invested in some of the best up-and-coming ASX-listed gold mining companies such as Barton Gold Holdings [ASX:BGD], Black Cat Syndicate [ASX:BC8], Dateline Resources [ASX:DTR], Gorilla Gold [ASX:GG8], Medallion Metals [ASX:MM8], Spartan Resources, and Southern Cross Gold Consolidated [ASX:SX2].
These companies delivered exceptional returns in the past couple of months. There’s no denying they are sitting on some compelling gold deposits, with some at advanced stages or even producing gold. But what made them stand out among the 150-odd gold stocks on the ASX was their story captured the market’s attention.
The geophysicist’s reasoning is that the mine assets are important. It’s the job of the marketing team to bring that to life. You can sit on a great portfolio of assets, but investors must feel excited enough so they bid up the share price. Their demand confirms the company’s value.
One company, many parts
I could continue to list the importance of the other components of the team. But I thought I’d highlight the answers I actually got from those I talked to in this trip.
Now don’t get me wrong. Our views aren’t conclusive. That wasn’t the point of me sharing it with you.
Let me conclude today’s article with a reflection on my years of investing in mining stocks and learning from my successes and failures here. I studied companies of different stages to identify which of them are most attractive investments. In the case of explorers and early-stage developers, I evaluate their projects and review their progress to help my readers earn long-term outperforming gains. I mentioned a few past winners previously, some of which are companies I tipped in this service.
A mining company is a complete package of the mine assets, the people, and a business plan. I realised that only when people realise that they all belong to the same body with the same goal will you get the most desirable outcomes. It takes certain combinations of people deliver these. That’s the key.
You might have a different opinion. In fact, I’d love for you to share it in the comments below. That’d spark a lively and engaging discussion.
If I’ve piqued your interest to find out more about how to evaluate and invest in gold explorers and early-stage developers, why not check out Gold Stock Pro? Get started with three companies that I believe are well-placed to rally as gold continues to set new records.
God Bless,
Brian Chu,
Gold Stock Pro and The Australian Gold Report
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