Junior Mining: Don't Underestimate The Importance of Cash
If you participate in the junior exploration company space I trust you are well aware of how highly speculative a venture that is - what with continuous promotion by some operators, 'finding risks', escalating 'finding costs', and so on. To some degree, participating in that space can be argued to be 'going to Las Vegas' without getting on an airplane.
That said, intelligent review, good due diligence, and ongoing monitoring of the better junior exploration companies can result in 'hitting it big' in the junior exploration sector.
If you trade or invest in this space, in any financial market environment but particularly in the current one you need to be continuously aware of the following:
how strong is the 'current' balance sheet of the company you are invested in, or are considering investing in. In this regard, be aware that virtually all publicly available financial information reports 'net cash balances' as at the latest quarter end, and that the 'net cash balance' of a company after a quarter end is almost certainly less than the latest reported amount. This necessitates an ongoing review of 'monthly exploration and development spend rates' in an attempt to determine a compnay's 'current day' net cash balance;
current 'net cash on hand' is critical, as new financings are difficult in the current financial markets environment, and if a new financing can be done by a company today it is likely to be very dilutive to current shareholders;
many commentators who write in the 'junior explorer space' either about the sector or about specific companies within the sector emphasize the 'importance of management' and management's track record of prior exploration and mine development successes. They are right in doing this;
in the current financial markets and economic environment, good management is even more important - if such a thing is possible;
good management currently means having enough cash in the bank to enable exploration and development to continue for at least one year, if not two years, without needing to go back to the market for additional financing; and,
good management increasingly means 'better and better corporate governance' - which in particular in the junior companies means appropriate optioning and bonusing policies. Efficacy of optioning and bonusing policies are a very important 'marker' to be continually considered when measuring the credibility of a junior resource (or any other) company's Board of Directors and Management team.
If you participate in the Junior exploration space, you owe it to yourself to read Cashless juniors! Off with their heads! This article, published yesterday, summarizes the comments made in the past few days at a Vancouver Investment Conference. The remarks of three well-known 'resource company commentators (Eric Coffin, John Kaiser and Lawrence Roulston) on the subject of 'junior explorers in the current market environment' (my words) are in part summarized in the article. I suggest you read what is reported and think hard about it.