It’s the lazy days of summer and Paul Renken, senior geologist and analyst with VSA Capital, is bottom-fishing. He sees a lot of value in unloved resource equities. It’s the lazy days of summer and Paul Renken, senior geologist and analyst with VSA Capital, is bottom-fishing. He sees a lot of value in unloved resource equities. It’s the lazy days of summer and Paul Renken, senior geologist and analyst with VSA Capital, is bottom-fishing. He sees a lot of value in unloved resource equities and spends much of his time sifting through the lot to find juniors that will get the increasingly sparse financing needed to turn potential into production. Renken offers an abundant catch of equity picks in this interview with The Gold Report.
Renken has a broad range of experience in various aspects of the mining and minerals business. He began his career as a geologist for Canadian junior resource companies in the western United States. Owning a stake in a private consulting firm as vice president of exploration, Renken searched for various base metals, precious metals and industrial minerals. In the UK, he worked in the equity market media outlets of Digitallook and Hemscott before joining VSA as mining analyst in 2006.
Interview by Brian Sylvester of The Gold Report
The Gold Report: VSA Capital recently published a research report that reads, “One of the key parts of exploration funding and the acceptance of risk versus monetary reward was the considerable correlation between share price appreciation and the reduction of geological risk.” However, this no longer seems to be the case. What’s broken?
Paul Renken: What has transpired for the last couple of years, particularly in the junior and very small-cap exploration space, is that the money to find deposits and advance them along the risk profile to a bankable state has largely disappeared. The dollars required to define a resource have been viewed by the market as an opportunity to sell shares to take advantage of any short-term price strength. From the long-term shareholders’ point of view, the money was wasted. Companies should have sat on the cash and not bothered with any exploration.
“Metallurgical testing onMkango Resources Ltd.’sREE deposit in Malawi suggests that it should be fairly easy to process with relatively high rates of recovery.“
The directors of these companies need to realize that at the early stages of a project, they have to consider the probability of finding a significant deposit and how much it’s going to cost to define it. Investors, and institutional investors in particular, are looking for very low costs of discovery.
TGR: Has that become part of your investment thesis for junior resource equities?
PR: Yes, we’re looking to bottom-fish particularly good stories with good deposits that have languished for some time but that are now showing good economics. There are many firms out there seeking capital but there just isn’t much capital to finance all of them, or even the majority. If you’re going to commit capital to bring some of these stories to production, why not cherry-pick the best stories and the best deposits at the most economical cost? The smaller you get in the resource space, the good deposits or good corporate stories are available at very low valuations simply because the sector has been so out of favor for so long.
TGR: When is risk capital going to return to the sector?
PR: The exploration side of the business, a subsector of the mining space, needs to show that it has the same or greater potential for a return on investor capital versus other sectors. It is a competition for the available dollars among all the different companies in all the different sectors—as well as debt capital and currency markets—not just other mining companies. Continue reading