By Anthony J. Alfidi
Resource Investor
I sift through a lot of materials on mining stocks looking for anything that fits my risk tolerance. A lot of movement in a junior mining stock’s price is defined by an S-curve often attributed to Pierre Lassonde, a legend in the mining industry.
The Lassonde Curve posits that a mining company’s life cycle has four stages: exploration, feasibility, construction, and production. Valuation is the vertical axis and time is the horizontal axis. A company’s valuation climbs rapidly during the exploration phase until it peaks with a pre-feasibility study, at which time it troughs during the feasibility and construction phases as the market realizes just how difficult it is to raise the large amounts of capital needed to make it to production. The valuation bottoms out at the end of the construction stage, when the bulk of the company’s capex budget has been spent. Once in production, the valuation starts to climb again.
A lot of random stuff can drive an S-curve’s movement. Mr. Market can have his way with a junior stock’s valuation. Sometimes macroeconomic news clobbers a stock even if it showed progress with an NI 43-101 report showing above-average 2P reserve grades. Announcements of positive developments like a pre-feasibility study, successful financing, and permitting approvals can “de-risk” a junior stock and make the S-curve jump northward. I think the term “de-risk” is overused. I chuckle when I hear exploration-stage companies say they’ve de-risked a project simply by walking around the site or looking at a map of old claims.