Investing in Precious Metals Miners Part 6 – 10 Rules for Investing in Gold Miners

Investing in Precious Metals Miners

Part 6 – 10 Rules for Investing in Gold Miners

Part of an ongoing discussion with Equinox Partners about investing in precious metals mining.

Equinox Partners is a team of ten professionals based in Connecticut with a 25-year track record, a pedigree that extends to the very inception of value investing, and a specialization in precious metals mining.  Today, the firm manages $500m in gold and silver mining equities on behalf of institutional and high-net-worth families.

Leading up to the firm’s October 22nd webinar with Family Office Networks, we spoke to chief investment officer, Sean Fieler, on the most important elements of investing in precious metals mining. His top 10 rules, in brief, are as follows.

  1. Know the C-suite: Past behavior is indicative of future behavior—especially with middle-aged mining executives.
  2. Know the board: A board is just as important to a mining company as the management, especially when it comes to big decisions.
  3. Understand insiders’ economics: Do they own much stock, or are they looking just looking to make a salary and directors’ fees?
  4. Understand the social license to operate: Mining is political, regional, and sometimes unpredictable.  A 360 degree review of the national, regional, and local issues is a must.   
  5. Know the asset history: Many mining assets are recycled back into financial markets when the first attempt isn’t successful. Knowing the history of an asset provides necessary context.
  6. Know the geology:  Every company promotes successful drill holes, but do those holes translate into a reserve that will support a profitable mine?
  7. Know the potentially fatal flaws:  From metallurgy to water rights, there’s a long list of reasons why a mine will not succeed.
  8. Know the financing: HOwnWill your equity ownership be diluted?  Will the debt terms be prohibitive?  Or, will the company never line up financing at all?
  9. Know the cash-flow allocation: Many managements want to build mines and grow at any cost. It is crucial to engage management on their capital allocation priorities.
  10. Valuation: Applying a multiple to cash flows is necessary but not sufficient in mining. The qualitative assessments behind the valuation is equally important given the multifaceted risks and stages inherent in the industry.

For information, Daniel Schreck, Partner at Equinox Partners, at [email protected] or 646 833 2783.