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What to expect (July 5)

• Junior mining investors are tired of losing money - when will it end?

Mining investment is all but dead.

Don’t believe me?

This graph of the TSX Venture index proves it.

If 10 years ago you invested $1,000 in the TSX Venture Composite Index, a stock market index that tracks the performance of companies listed on the TSX Venture Exchange in Canada - you’d be down to about $500, or 50%.

Not exactly ideal.

But why?

Since the TSX Venture’s creation in 1999, it’s served as the primary exchange for early stage exploration companies.

Investors have historically understood the “high risk, high reward'“ nature of the exchange and generally allocate a smaller portion of their portfolio to these types of companies, in hopes of a ‘ten bagger’ - referring to 10x+ returns.

While these returns still occur, risk capital is becoming harder to access for new companies - investors just aren’t investing in mining as much as they used to.

They’re still investing though.

If you put that same $1,000 into the S&P 10 years ago, you’d have almost $4,000.

So what’s the problem?

Well in short, investors are getting smarter about where they put their hard earned cash.

In the mining industry, a common belief is that "mines are made, not found."

However, this mantra, often promoted by those looking to profit, might not reflect the harsh realities many small mines face.

You see, most mines don’t ever make it into production, and I’d argue that even less should.

Projects are promoted by heavily invested parties and investors are told this is the next ‘sliced bread’.

This results in a rise in stock price, followed by a subsequent financing at a higher price.

More investors pile in and the company pushes to develop an official resource for the project - which is often overally optimistic and uses ‘best case’ scenarios.

Then, if lucky, the companies will go into production.

Sounds good, right?

Well, this is where the facade shows itself.

These companies will run into ‘unexpected’ costs, grades won’t be consistent and they’ll start losing money, and investment.

This is because the initial studies done on the project were maybe too optimistic and failed to account for all the variables.

It will require too much capital to adjust the operations and eventually the project is sold off for virtually nothing just to get rid of the liability.

The next group will essentially rinse and repeat until they run into similar issues.

It happens all the time.

How many projects have really had no work done on them and are completely new? Very little.

This is becoming too common - and don’t get me wrong, there are investors who will make money in this process, but they’re typically the ones involved in the company who took large positions early on.

This cycle is not sustainable and the industry risks more investors leaving if things don’t change.

If you haven’t been scared off yet and still think there’s value in this industry, you’ve got balls - and you’re right, there is still value.

But you need to be careful.

1. Learn about the history of the project. Who owned it prior, has it been mined before, if so why’d it stop?

2. Management - do they have a history of success, if not, do they have respected advisors helping? This is the most important part, good management will figure out success someway, even if the first project doesn’t work out.

3. Market trends - Is this industry growing or stagnant? ‘Hot’ markets like copper & lithium can be good, but there’s a lot of companies jumping on the bandwagon, avoid those.

It’s going to take a long time for investors to feel confident in junior mining again.

And it’s even harder to get new investors in the game when all they see are failures.

This industry is more cyclical than most and the tide can turn at any time.

As they say, a rising tide lifts all boats.

Just not sunken ones.

👋 Colton, Stock Monster.

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