Ever since the Bre-X fiasco, the majority of press releases of a number of mining companies were presented in a highly objective and low-key fashion and were devoid of hype and over-promotion. However, believe it or not: sometimes circumstances warrant a company to toot its own horn in order to be noticed above the din of the other companies. Perhaps the following SIX P's for evaluating a mining stock will provide some insight.
In evaluating a mining stock, one has to consider the SIX Ps:-
1. People (the quality of the management; note the history of the managers, their track
record, the history of the share price, note who are the key players and whether
'hot-shots' are present or are coming on board from some other big company
2. Property (quality or richness of deposit/reserves and feasibility of mining them)
3. Phinancing (or Financing, the how and where of it; note if a "major" is interested or a
joint-venture with a "major" is likely)
4. Paper (the number of shares, warrants, options and private placements and when the shares in private placements become free-trading)
5. Promotion (an essential for a stock if it is to be noticed above the siren-calls of other stocks, especially if the management is relatively NEW to the mining world)
6. Politics ((government/environment groups/tree-huggers)'s
interference has to be considered) etc. For example, consider how the indigenous folks at Voisey Bay have delayed the exploration efforts of a number of mining companies and are presently delaying Inco's operations)
Also, one has to consider the values of the
market capitalization which is calculated by multiplying the total number of shares by
the current share price, assuming the stock company to be fully valued, and the true
asset value which is equal to the sum of the money in the bank plus money already
spent on developing the property plus the dollar value of 20% of the total proven and
probable reserves. If the
true asset value is greater by several factors than the
market capitalization, the stock is said to be UNDERVALUED and the stock is
likely a very good investment. The stock is said to be OVERVALUED if the market
capitalization far exceeds the
true asset value.
Alternatively, one could also draw similar conclusions by comparing the share price
with the true asset value per share. The latter is calculated from the (true asset
value divided by the total number of shares). If the share price is smaller than the
true asset value per share by several factors, the stock is said to be undervalued and
is likely to be a good investment.
Errors, omissions, exceptions and criticisms, anyone?
Richnorth |
