Mining tycoon Tolga Kumova shares his secrets for investing in junior explorers
The key to successful investing in junior resources plays is to look for directors with “skin in the game” — and don’t put all your eggs in one basket, says mining tycoon Tolga Kumova.
You’ve had a lot of success with your investments so far, what advice do you have for people looking to invest in the junior end of the resources sector?
I’ve invested in a couple of exploration companies that have a better than average probability that they will find a discovery, but my major investments are in things that aren’t, in my opinion, as risky.
For the average investor that is just sitting at home trying to understand, I’d probably just follow the people that know what they’re doing. More specifically following directors and managing directors of companies that have a lot of skin in the game.
There was an example the other day, Steve Parsons — who is the MD of one of the companies I have invested in, Draig Resources. He bought $75,000 worth of stock on market. You don’t do that unless you’re confident in your business, which is why I went out and bought almost a million dollars worth of stock after him.
What is the key thing you have learned from your time in the resources sector?
My biggest education I suspect while building companies was more about perseverance — but not misguided. A lot of these investments that we make, it’s very obvious that it’s going to work.
There are not that many mines built around the world in a year. So if things have an issue, whether it be the grade or the strip ratio or if it’s in a difficult jurisdiction or if something with the infrastructure is just not right or if there’s some hurdle that makes it not obvious that it’s going to work, then there’s a high probability it won’t be developed anytime soon.
Who has been the most influential in the sector?
It’d be hard to go past Andrew Forrest.
There was a time where every single domestic Australian fund manager was mocking him when he set his dream out for everyone to understand when he was building Fortescue. He had to go offshore – beg, borrow and plead for money and he got it out of New York, not Australia.
He did have a dream, he did have a vision, he did persevere. If there’s anybody to mould yourself on, he’d be the guy.
Which areas of the mining sector are you looking to direct your cash into?
I’ve got operational positions, I’ve got a number of development positions and I’ve got a number of greenfields going in and drilling out resources and I’ve also got pure exploration plays.
Not everybody is going to have a large enough portfolio to be able to spread the risk as what some others can, but if you can position yourself across the chain, it’s diversifying risk instead of having all your eggs in one basket.
Having said that, I made most of my money building one company, but at the end of the day I was actually the managing director and CEO of that company. So I knew it better than anybody and I could influence the outcome, whereas when you’re an investor sitting at home you’re not able to influence outcomes. You’re trusting management teams to do that for you.
How much do you have invested in the resources sector and how much of a return have you made on these investments?
I don’t actually look at my portfolio on a day-to-day basis and the reason being is I’m in these companies for the long term. I genuinely believe in them. It’s not cash until it has been realised. So those companies have to succeed.
I don’t think it’s worthwhile watching the valuation of a portfolio up and down every day for someone like me. I won’t sell a position until I think the story has changed or it’s so overweight in my portfolio and I’ve actually achieved the outcome and the things I was there for.
What is your strategy to grow your wealth further?
I’d do more of the same. I have a model that works. We look for assets that we think have enormous potential specifically around the risk that we’re taking when we’re making the investment.
So if the risk/reward is skewed in our favour then we’ll pursue it, but then at the same time I have a team of people that I work with that are highly talented in what they do — in structuring these deals, in finding these assets, analysing these assets and developing these assets.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.