John, don't be so quick to give up on your hopes and dreams for just the Value Line covered mining stocks,** OK? Here's a primer for you:
1) In the mining industry, there are 3 basic M's for investing:
Money, Metal (in the ground) and Management.
2) There are multiple phases in each of the 3 M's
A) Money
Money is raised primarily by the shares of stock, through private placements, to family and friends first, in a high risk, high reward go for the gusto gamble. Seldom does one get a chance to participate at this level. I have been fortunate to play in this arena as I know currently closed mine owners (since 1964 and earlier) who are being approached to re-open their properties to current mining technology.
Those of us buying on this friends and family level may or may NOT be restricted trading shares. All that I've played in have NOT been restricted friends and family shares. Our money is usually used to either buy a shell company that is already listed on one of the exchanges, but currently has no assets, or is spent trying to get a prospectus issued and a new stock symbol assigned. This process can tie up your money for approximately 2 yrs while all this is going on.
B) The second level of Money concerns the issuance of options for free or severely reduced priced stock to a mining company's principals, i.e., President and or CEO. These are restricted shares, usually for a period of 1 or 2 years after purchase. Converting these options INTO shares and selling them at higher prices is how start-up companies pay their principals, since they do not draw a salary in the beginnings.
C) The 3rd level of Money conerns the issuance of private placement stock, which is usually offered to well heeled investors in exchange for them not being able to sell these shares for a period of 2 years of so. The company uses these funds to aero mag survey, ground map, trenching, reverse circulation and/or diamond drilling, etc.
It is not unusual to see a start up company cash burn rate @ C$25,000 per month at this level.
2)The second M---Metal in the ground
This primarily deals with whether a piece of property is being prospected for one of the base metals, (e.g., copper, nickel, cobalt)
one of the precious metals (gold, silver, platinum, palladium)
or other (like Coal or Potash)
There are several up and down phases at this juncture as hopes rise and fall. These up/down fluctuations are due primarily to the ability of the company to sell their story about what they THINK is in the ground they've got rights to explore. If they are convincing enough and use the private placement monies as intended, then this is an unfolding story of exploration. This stage offers the second highest return on investment if the company is successful in finding anything to mine.
If they are not successful in locating cost effective Metal in the ground, then they disappear and your investment is worthless. If they do find Metal in the ground but can't raise the money to "DEFINE" it, then you investment becomes worthless.
As a side note: Usually governmental agencies grant exploration companies huge tracts of ground to try to find said "treasure." If the company is not successful in locating same or raising the money necessary to do the aerial work, mapping, trenching, and drilling, then the government takes the property back and "options it out to another outfit who can get the job done."
Most players in this game do not understand that when KRY got their bazillion hectares to look for gold in Brazil announcement in the last couple days, that there are normally fees to be paid, UP FRONT, to that govt and a time limit in which to find something, prove it and turn the rest back to the govt. The parts they don't search they may or may not get to "renew their option on" once or twice before it is permanently gone.
3)The third and last M---M is a much tougher one to quantify. Since a few big downsizings in the industry in the last 30 years, there are many people around who are qualified geologists who have landed here and there. Some land on Wall Street, or in the case of Vancouver, B.C., Howe Street, and become geological analysts. Some of the rest strike out on their own. Some land jobs with exploration companies.
To hear each company talk, they've all got the bestest and the mostest out there, and therefore, THEY are the most experienced management. However, there are maverics in this business, like Clive Johnson (Bema) who gets in a snit and does it his way and takes forever.
Then is Peter Monk of Barrick (ABX-NYSE)who tries to bully his way into deals (Bre-X and Indonesia). Or there is Peggy Witte of Royal Oak (RYO-AMEX)who the industry doesn't like simply because she's a woman and busted a union at one of her mines after one of the union demonstrators bombed one of her milling facilities and killed 3 and injured dozen's more union members, if I recall correctly when doing so.
Now, after all the above:
Distill it to this: Money, Metal, Management.
And the game plan is this.
1)Find a spot to prospect in, start a company.
2)Find others to finance it.
3)Prove up 2mil oz of gold at cheap recovery costs (under $200 per oz preferable
4)Flip it to a major company(ABX, PDG, NEM, HM) for a royalty interest
5)Let the majors build the mine and produce the gold.
6)Cash the royalty checks.
The best place for the most "X-bagger" return on your investment is in the stage 1.
The second best place is as each little press release turns the hope faucet on or off. That's stage 3.
The hardest stage to make a buck is at stage 4. All the talk of deals and at what price and at what time will wear out several good pairs of prayer cloths as the faithful hanger-on'ers pray for a high price take over.
The safest stage is Phase V, because a major is actually producing and selling a product. **These are the ones Value Line covers, ok? The downside to Phase V is that a producer is in bondage to the supply demand picture of his/her end product, i.e., the price and supply of gold or copper or coal or potash.
Best Regards to you, newbie. Jump in....the water is fine!
O/49r
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