The good, the bad and the ugly: What to know about investing in mining juniors
With hundreds of junior resource plays on the Australian bourse, it can be difficult for an investor to know what to put their hard-earned money into.
Commodity, location, project status and board composition are the four key factors investors should examine in mining companies, Austex Mining executive director Rob Murdoch said today at the Mining 2017 Resources Convention in Brisbane.
“Is the market interested in the commodity? There is no good flogging a commodity when no-one wants it,” he said.
“You have also got to be in the right location — does the market think that geological terrain is the right place to look?
“Do I look at a narrow vein in an area of outcrop that has been walked over a thousand times or do I take a risk and look under cover at some of our deep basins that have potential to produce a decent-sized ore body?”
Board make-up and project status were also critical.
“It’s no good having a board full up with geologists if they have never been to the market before,” he said.
“You have to have someone who will excite the market — someone the brokers are going to listen to and investors are going to grab hold of and say ‘that guy is going to make it work’.”
Investors should also ask: “Is the project at the exploration, evaluation, emergent or production stage?”
“At each of these stages there are different things to look out for.”
State of the junior resources market
Across the board, there has been an average 10 per cent increase in prices for junior resource companies this year — but only a third have seen their price jump.
The mining downturn had resulted in a culling of the junior market from 837 companies in August 2014 down to about 700 in third quarter 2016, staying around that level today.
So far this year, there had been 23 new floats or re-listings, predominantly out of Western Australia.
The junior sector was also going through a “mini-boom” for raising capital, he said.
“Typically, we see around $700 million made available each quarter to the junior resources market.
“That’s what the financial cap world will put up for our projects and of course companies need to fight for that money normally.
“We have seen an increase in second quarter 2017 with companies raising over $800 million which is above the recent average,” he added.
Winner winner chicken dinner
The top moving ASX-listed junior resources stock this year is Congo-focused lithium play AVZ Minerals (ASX: AVZ) which had 464 per cent in price by July 31.
AVZ gained on drill results at its lithium project in the Democratic Republic of Congo which revealed the presence of high-grade lithium mineralisation.
AVZ is followed closely by Brazil-focused gold play BBX Minerals (ASX:BBX), up 463 per cent, and WA gold stock Beacon Minerals (ASX:BCN), up 414 per cent.
The Biggest Losers
Krakatoa Resources (ASX: KTA) was the worst performer, taking an 84 per cent dive over the year after an agreement to acquire a clean energy company was terminated.
Meanwhile, Winmar Resources (ASX: WFE) fell 79 per cent after its JV partner in its Lomero metals project in Spain, Kimberley Diamonds, went into administration.
Utah- focused lithium play Red Mountain Mining (ASX: RMX) came in third, dipping 75 per cent in share price on disappointing lithium results.
Austex provides research and analysis on resource industry companies and projects.
Vertical Events’ premier flagship event, the Mining 2017 Resources Convention, is being held at the Brisbane Hilton August 29 and 30.