Why ‘One-Hit Wonder’ Explorers Will Burn Your Money: The Repeatability Test

I’ll keep these updates brief and concise, distilling the key aspects of geology that matter for investors.

Our focus is zeroing in on the ‘practical side’ of geology and how it can bolster our investment decision-making.

What we’ve learnt so far

As I’ve explained in this series, high-grade projects tend to deliver better operating margins because for each tonne of rock moved, more ounces or pounds of metal can be extracted.

It’s why higher-grade operations tend to stay in business when commodity prices fall or operating expenses rise.

Yet that’s ONLY if they have the scale or size in the first place to warrant the enormous capital expenditure involved in developing a new mine.

At a minimum, new mine developments typically cost $1 billion, although this figure depends on the type of commodity being mined.

So, what matters more, the width of the initial drill hit or its grade?

At the end of the day, it’s a delicate balance between both: size is just as crucial as grade for all the reasons I’ve outlined.

But at the early exploration phase, there’s another key factor for investors to consider:

Repeatability: the #1 Factor for
Validating a REAL Discovery

Given that geology is hidden below a thick cover of soil and barren rock, mineral exploration is essentially a treasure hunt…

Where geologists use clues in the rock and draw on past experiences to narrow down their search.

So, to briefly outline how this search happens:

A big part of a geologist’s job is to prioritise drill targets ahead of a drilling campaign.

That’s because drilling is capital-intensive, especially for a small junior whose entire cash holding could be drawn out by a single campaign!

Explorers literally live and die by their drill results.

So, geologists need to stack as many probabilities as possible in their favour to ensure there’s at least something ‘positive’ to draw from it.

They’ll combine data from geochemistry, geophysics and historical drill hole information (if available) before sticking a hole in the ground.

But let’s assume an explorer
DOES make a hit, what then?

Well, it’s still a LONG journey before that initial drill hit manifests into a working mine.

Assuming an explorer has struck mineralisation that exhibits BOTH grade and width, it must be REPEATABLE.

In other words, can that initial drill hit be replicated 100, 500 or even 1,000 metres from the original discovery hole?

Only then can the company prove its project as a contender for a future operating mine.

It boils down to this:

Repeatability of drill hole results (across a large area) VALIDATES discoveries as future income-generating deposits.

On the flip side, many exploration companies are what I’d describe as ‘one-hit wonders.’

Raising capital from a single exploration hit, but never able to back it up in follow-up drill campaigns.

That’s why you should never invest in a company with just ONE strong drill hit.

Instead, target companies that consistently show mineralisation through numerous drill hole campaigns… Even if those hits are not high-grade mineralisation.

That indicates that the drilling area is broadly prospective and not limited to a small pocket or narrow zone.

It also hints that the ‘big one’ could be on the way, eventually.

You need to stay patient and stick with this type of explorer.

If management has strong geological skills, they’ll refine their targets and narrow down the geological clues to the primary source…

What I’ve described previously as the motherlode!

This is like reverse engineering, finding the pockets of mineralisation, like small high-grade veins…

And narrowing down these clues to the source… The point at which mineralisation might have originated.

Summing up what we’ve learnt so far

As I’ve outlined, high grades alone won’t bring a project into fruition.

Drill hits also need to demonstrate a broad (or wide) zone of mineralisation.

GRADE and WIDTH are of equal importance.

But perhaps just as important is the repeatability factor…

Demonstrating that the initial drill hole wasn’t a ‘one-hit wonder.’

That it can be repeated horizontally (along strike) over several hundred metres.

Of course, if a company has already ticked all of these boxes with its project, it means you’re probably going to be paying a steep premium!

Especially in a favourable market.

That’s why I try to look for these clues BEFORE they become widely visible to the market.

Using my background experience as a geologist and overlaying that with specific recommendations for my paid readership group.

If you’d like to find out which investments I’m targeting right now, you can do so here.

Until next time.