I just got home from the Prospectors & Developers Association of Canada conference (PDAC).
It’s the world’s largest and longest running mining conference, held annually in Toronto, Canada in March since 1932…
Why Toronto in March instead of Vancouver in June? I don’t know – maybe it’s intended to keep out the riff raff.
Each year, thousands of companies come to Toronto to promote themselves, make deals and connect professionally.
The big takeaway from this year’s conference is the sheer number of “new” companies out there.
I put “new” in quotes, because many of these firms are just rebranded old projects pulled out of mothballs with a shiny new coat of paint, a new name and some new promotion.
Due to the litigiousness of these kinds of firms, I won’t name names…
But many of these projects will never make money for anyone except for the insiders. That’s by design.
That’s because there are two different kinds of management teams in the mining industry.
There are the high quality management teams who aim to mine gold in order to create shareholder value.
Then there are nefarious teams who aim to mine shareholders in order to create management team value.
Now, there are no guarantees that the high quality team’s aims will work out. But if you’re putting your money into companies run by management that intends to screw you, then you have very little chance of prospering.
I continue to focus entirely on owning firms and doing deals with the high quality management teams.
But I want to warn you:
As this bull market continues, we’re going to get inundated with a stream of flashy marketing and promotion from the bad guys. They’re going to dangle big promises of “world class” mining projects in front of our noses.
Many of these people are not just telling puffed up stories, but are actually engaging in criminal fraud. Some of them will end up in prison by the end of this bull market. I’ve seen it happen. It happened in 2011. It happened in the 1970s. It will happen again.
For one example: I was recently pitched a deal that would value a silver stock at $500 million.
The problem? This firm has zero drilling results. That means we have no idea if there’s very much or really any economic silver in their dirt.
Right now, there are a handful of silver stocks out there sitting on actual silver results worth $500 million or more.
They’re extremely rare companies – but my point is, we don’t need to speculate on low-probability stories about silver or gold.
We just need to focus on high quality management teams with compelling (aka, real) projects.
My main goal is to put you into these high quality projects. But my secondary goal is nearly as important: to help you avoid the bad projects.
It’s very difficult to come out ahead in this business if your attention is split. Flushing capital down the toilet on bad projects will chew up your wins.
From what I just saw at PDAC, the market is starting to surge with bad projects. That’s okay. It’s what happens as a bull market matures. But it means we need to be extra careful with our capital.
The real trap is that some of these projects will get lucky and soar along with the high quality ventures. The average investor simply can’t tell the difference.
As more general investors enter this market, the bad projects will feast and bloat. Looking at prices alone will confuse the issue.
Keep your eye on management – and pay attention to what I’m saying in this publication. I’ll keep you pointed in the right direction.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio