11 things to look for when investing in ASX junior mining caps

Retiring Canaccord Genuity associate director provides tips on investing in mining stocks
When it comes to mining projects, jurisdiction is probably the most important factor
Investors should also read up on quarterly reports to see how much is being spent on exploration

Most of us are trying to find another life changing opportunity by early-stage investing in mining success stories of Chalice (ASX:CHN), Northern Star (ASX:NST), Mincor (ASX:MCR), and Pilbara Minerals (ASX:PLS) – stocks that were around 10 or 20 cents before heading north.

Keynote speaker for the second and last day of the Resources Rising Stars Conference this morning, Don Inglis – retiring Canaccord Genuity associate director – provided his tips on how to analyse a junior exploration company.

With 35 years’ stock broking experience under his belt, Inglis said to begin with, the experience of the board is key – investors should consider how many boards the directors are sitting on and what incentives they have such as performance rights and options.

Mining projects

Moving into mining projects, when looking at a company’s portfolio the jurisdiction of the operation is “without a doubt very important”, Inglis said, especially given the trouble we have seen – not just in places such as Africa but more recently, in Latin America with a boom in metal prices sparking violent protests.

“Is the project greenfield? The market loves greenfield exploration,” he said.

Take for example the excitement created by Chalice and De Grey at the time as well as just recently with Galileo Mining (ASX:GAL).

“That is rare that we find successful greenfield exploration, most of the success stories in recent times have come from brownfields.”

What metals is the company targeting?

“Obviously it is interesting that there’s a lot of focus on EV metals, but you can always sell gold, copper and nickel,” he explained.

Keep an eye out for drilling, is it RAB or diamond drilling?

“Look at the grades, widths and the resource.”

Cash in the bank

When investing in mining stocks, you need to take into account how much the company is spending on exploration versus administration costs.

“Always look at quarterly reports to see how much is being spent on exploration, although granted it is more expensive to run a company these days particularly with inflation.

“Market capitalisation – look at the number of shares on issue as well as the number of options and convertible notes,” he said.

“Convertible notes can always be a bit of a hidden time bomb because you never know what the conversion rate is.

“And look at top shareholders, we like to see directors with skin the game and we all like to see some funds in the game, how many shares are traded?”

Building your own portfolio

Think about financial risk, he said.

“Be careful when investing in this sector because a lot of it can be speculative.

“Don’t borrow money to buy speculative stocks – the biggest financial risk we are faced with is the person we sleep with every night.”

Inglis also left us with a couple of axioms to reflect on:

“Grade is King” – always has been, doesn’t matter what the metal is, it is all about the grade
Projects offshore – be careful about where you think your investment is going and even though a metal might be hot as, for example lithium, some of those jurisdictions will be problematic… to put it mildly
Nearology – somebody makes a discovery and all shares around it go up, but 9 times out of 10 there is nothing there
Rockstar fund managers – be wary of them as well as rockstar CEOS.

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