RETAIL investors with burnt fingers gave me flak for declaring this week the Sirius Minerals Yorkshire mining project looked a dodgy investment from the start. Fair point, it’s easy to be clever after the event.
So, given that another popular mining stock, Nemaska Lithium, just pulled its $300 million bond issue in a Xerox copy of Sirius, how can you spot the dogs before they bark?
Retail investors love explorers because they’re a gamble — once in a while you can get lucky and make seriously big money.
Small-cap broker VSA Capital points out that, on the whole, exploratory mines only ever get into production if a major buys them first. And the majors usually spot them early. So, if you see any independent miner with market capitalisation creeping up to £100 million or more, it’s probably about to crash. Get out.
In general, you should buy early and sell early — be first in and first out. Some retail investors will have made decent money by exiting earlier this year.
Other basic VSA red flags: is there huge demand for the grade of minerals available? Sirius had some buyers lined up but its potash fertiliser was of an uncommon type which could have proved hard to persuade farmers to buy.
Is the political environment right? Sirius’s preferred funding package depended on support from a UK government famously reluctant to put taxpayers’ money in private projects. The state predictably refused to cough up.
Are the experts big backers? If not, why not? Sirius had some blue-chip investors but half of the stock was owned by members of the public.
The key thing is to remember exploration is a casino. Only bet what you can afford to lose.
