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VANCOUVER (miningweekly.com) – In the aftermath of several key mining-related indexes having dropped significantly since 2011, the mining industry as a whole, and particularly the junior explorers and project generators, have had to “reset” and undergo a paradigm shift from being project promoters to true value creators.
This was the message institutional investor adviser Jayant Bhandari relayed to affiliated investors attending the Cambridge House International Vancouver Resource Investment Conference 2015.
He pointed to several indexes, such as gold, gold exchange traded funds, the Market Vectors Junior Gold Miners ETF and the TSX, having each shown significant declines since 2011. The fountainhead of the problem, Bhandari argued, was uneducated investors, who were supporting dithering companies that were not creating value.
He had found that investors were often influenced by passions and half-truths such as the myth of price leverage in a rising cost environment and fads, such as the axiom of “grade is king”, or the promise of a new geographic “flavour of the month”, such as Colombia or the Yukon, all while failing to look at the specific company’s financial and legal documents.
Bhandari explained, for instance, that the ‘grade is king’ fad was not always true. In the case of a 6 g/t deposit, 2 km below surface, a 0.8 g/t deposit near surface with easily leachable ores trumped the higher-grade prospect.
He added that too many investors relied excessively heavily on companies’ presentations for information, failing to take into account that these were not legal documents, but marketing material that did not necessarily disclose everything that an investor needed to know.
Bhandari noted that valuations were often based on myths rather than empirical measures, such as profitability, cash flow and discounted cash flows, which had in the past resulted in several projects, with no hope of success ever, trading for hundreds of millions of dollars.
He urged investors to take the time and do thorough due diligence before taking a position in a mining company. “Look at and use the technical disclosures that Canadian companies are forced to file regularly with securities regulators.”
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