It’s never too late to find a new way to evaluate mining companies, and Jeff Desjardins and James Fraser of Tickerscores.com have developed one based on over 20 different criteria. Add in some near-term catalysts and the wheat separates from the chaff. In this interview with The Mining Report, Desjardins and Fraser share the names of companies with some ofTickerscores.com’s highest junior mining scores.
Jeff Desjardins founded Tickerscores.com, a universal, independent and comprehensive stock scoring system that gives investors access to investment research on mining stocks. Tickerscores has coverage of over 450 precious metals companies on the TSX and TSX.V and compares them head-to-head to make due diligence easier for investors. Each quarter, Tickerscores also puts out an in-depth Top 10 report of the highest scoring stocks in the system and other analyst picks.
James Fraser, mining analyst at Tickerscores.com, is passionate about the mining sector and mining stocks. His passion led to co-authoring the book “Mining Stocks Investor Guide: a guide to investing in mining companies.” He has a finance background and has completed his Canadian Securities Course (CSC) and Conduct and Practices Handbook (CPH). When Fraser is not “digging” up the latest mining stock, he can be found enjoying a wide variety of sports or travelling the world.
Interview by Brian Sylvester of The Mining Report
The Mining Report: A recent article on Tickerscores.com, “The Great Divide: Inequality in Gold Juniors Means Opportunity,” said: “It’s clear we’ve reached a new level of separation between the wheat and the chaff.” What does that mean for investors?
Jeff Desjardins: As the bear market has progressed, many companies have struggled to raise the necessary funds to advance their projects. Even for those that have been more fortunate, it has often come in the form of dilutive financings.
On the other hand, quality management teams have found ways to continue to move projects forward. We’re starting to see a big separation in metrics such as cash, general and administrative expenses (G&A), news flow and, ultimately, the creation of shareholder value. For example, we cover 22 exploration companies working in Ontario and 82% of those had less than $400,000 in cash in Q1/14, up from 65% in Q3/13. Our top three exploration companies in Ontario hold an average cash position of $2.2 million ($2.2M) each. The other 19 average only a mere $150,000 per company. Furthermore, the G&A expense ratio for the bottom 19 companies is a hefty 76%, which means that $0.76 of every dollar is not going into the ground.
We are looking at a great divide between the rich and the poor. The funny thing is that even though the rich companies have great management teams and cash to continue to develop their projects — key things that you want in a junior name — they are still trading at great valuations.
TMR: In which mining sub sector — producer, developer, explorer — is an investor likely to get the most bang for the buck?
JD: All those types of companies have their advantages. It depends on an investor’s portfolio, strategy and risk tolerance. Right now, we’re focusing on developers. We published a report in early September that lists some promising companies in this stage. We believe developers with high-quality assets will be subject to merger and acquisition (M&A) activity once they are sufficiently derisked because larger companies want to buy proven resources at rock-bottom prices.
Investors should look for developers with a resource of at least 3 million ounces (3 Moz) with high grade and in a safe jurisdiction. A takeover offer is rarely made before a company publishes a preliminary economic assessment (PEA) so investors should look for a PEA or feasibility study with a high net present value (NPV), low capital costs (sub-$700M) and a high internal rate of return (IRR).
TMR: What jurisdictions should investors be taking a closer look at right now? Continue reading