Gold and silver mining companies aren’t all the same, and successful investors know how to separate the best from the rest. There’s no need to get lost in the vast sea of information when you can focus on the most important data points and, with a little bit of effort, separate the best from the rest.
In the end, your due diligence should be worth it. Shares of mining stocks can provide powerful leverage to the upside moves in gold and silver. Plus, not all brokerage accounts will allow you to hold bullion, but many of them will let you buy gold and silver mining stocks.
Hopefully, you’re in the habit of looking through the investor relations website of any company you’re considering. After you get an investment idea from Crush the Street or somewhere else, that’s the first place to look; an investor relations website should include a company’s recent press releases, investor deck/presentation, and financial reports.
The company’s “About” page (or something similar to “About”) is a great place to start, just to get the basics. Then, you can move on to the investor presentation, as it should give you more details about the company.
Now that you know where to find the essential facts and stats, you might be overwhelmed by the mountain of information that’s presented to you. Just remember that great gold and silver mining companies need great people to succeed. So, feel free to start by investigating the company’s management.
Typically, top gold and silver miners will have executives who have held leadership positions at other mining companies. The company’s president, CEO, CFO, and other leaders should be able to say, “This isn’t my first rodeo.”
Then, the investor presentation will often list the company’s major shareholders, so keep a lookout for that. If a company’s shareholders include large financial institutions, billionaire investors, and/or other resource companies, that’s a good sign.
Next, find out what mineral-prospective assets the company has. It’s fine if the company doesn’t fully own the assets, as long as it can generate revenues from those assets. Some gold/silver businesses use a royalty and/or streaming business model, in which they can profit from the mining activity of a variety of mining companies.
As for the assets themselves, they should be located in mining-friendly jurisdictions with access to available workers, electricity, and roads. It’s also encouraging when an asset is past-producing (gold or silver has been extracted from there before), and if the neighboring/surrounding assets are past-producing.
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In the company’s investor presentation and press releases, look for preliminary and/or follow-up assessments to determine whether there is mineralization in the company’s assets. A vein indicating gold and silver today, can often mean that more of it will be discovered and extracted in the coming months.
Another question to investigate is how cheaply the company can get the gold or silver out of the ground. A simple way to measure this is through the AISC, or all-in sustaining costs. If a miner’s AISC per ounce of gold or silver is lower than the spot price of the mineral itself, that’s good because it means the company is able to get it out of the ground cheaply.
A related concept is the optionality strategy: when a company purchases mineral-prospective assets when gold and silver prices are low, in order to generate robust returns on the investment when the mineral prices go up. Companies that use the optionality strategy tend to provide excellent value to their shareholders over the long run.
Naturally, you’ll also want to conduct research on a company’s financials. Is it well-capitalized to continue its exploration and/or production activities? If not, then can the company at least get financing soon?
Finally, it’s not a bad idea to check a company’s stock chart, along with the charts of the gold and silver prices. Don’t be fearful just because the price went down recently. After all, successful investors buy when others are selling, just like companies can use the optionality strategy to buy assets when they’re cheap; this is the crux of contrarian investing.
So, just to recap, you’re looking for leadership, assets, strategy, and financials. There’s no need to compromise when there are gold and silver miners that check all of the boxes, providing you tremendous opportunities to build wealth during a bull market in precious metals.
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