There are no easy answers in this market. Companies and investors alike have to hunker down and make tough calls, but that doesn’t mean companies and investors can’t make money, even in the short term, says Kerry Smith, a research analyst with Haywood Securities. Smith and Haywood’s staff geologists narrow their sights on small companies cheaply exploring for beaten-up commodities. In this interview with The Gold Report, Smith reveals some fresh names, as well as perennial favorites on Haywood’s quarterly round-up.
The Gold Report: Kerry, Haywood Securities recently published its Q3/13 Junior Exploration Report, which tells prospective investors about 17 exploration companies across a range of mine commodities. There were 20 companies covered in the Q2/13 report. Six of those have since been removed, while three new companies were added. Why does the report have such a short-term investment horizon?
Kerry Smith: Our focus is to identify companies that will have meaningful news in the next three months that could impact the share price. We’re looking for companies with projects that we like from an exploration perspective and we have a Ph.D. geologist who is charged with making sure the names in the report offer geologic potential.
TGR: Investors typically take a longer-term view of mining equities, but do you believe you can make money with a short-term horizon?
KS: If a company has meaningful catalysts coming in the next three months, money can be made by investing in it. I would agree that, ultimately, the way investors make real money in the space is by investing in an exploration play that makes a discovery and staying invested until it has been drilled off to a resource stage. Typically, investors would want to sell before the company starts talking about permitting, construction and project finance because that’s when a company goes into a huge vacuum—there is no news and the stock rolls over.
“We look for companies with the potential to deliver an economic discovery with compelling margin potential and high project returns.”
We’re trying to find companies that can deliver decent catalysts in the short term. It’s a constantly evolving list. We roll names off, and we roll names on.
TGR: There are hundreds of exploration plays. At a time when investors are eschewing risk, what do those three new companies in the report have in common?
KS: We like the projects that they are working on. There is the potential for a discovery or they already have a discovery with the potential to grow. The corollary is that the valuations are relatively modest.
Our primary criterion is the potential to deliver an economic discovery with compelling margin potential and high project returns. A company like NovaCopper Inc. (NCQ:TSX.V; NCQ:NYSE.MKT) controls a world-class, volcanogenic massive sulfide, base metals belt in Alaska. It will continue to deliver meaningful news. CEO Rick Van Nieuwenhuyse is an exploration geologist. He’s very good at dealing with First Nations issues and exploring for and finding deposits. This is an exploration story, and that’s what he is good at.
NovaCopper could stay on our list for some time because it’s in an established district with established discoveries. That is the kind of deposit that can make it in this market.
TGR: Did any new investment themes come to light while assembling the report?
KS: The market is looking for projects with high grades, low political risk and lower capital expenses (capex). It’s impossible to finance a 1 billion ton ore deposit with $2–4 billion ($2–4B) in capex. The market is looking for bite-size projects, like a heap-leach project with a $100 million ($100M) capex.(...)Click here to continue reading the original ETFDailyNews.com article: The Miners That Made Haywood’s Quarterly CutYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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