Friday, 15 Aug 2008
Commodity
What commodity is the company involved in, does this particular resource have good fundamentals to go up, as well as a good trend? If not is your company flexible to changes in the underlying commodity? If it isn’t and the resource is likely to change price, then your stock is gonna flop… also is the commodity very controlled such as the price of gold which possibly is manipulated. Or in a different situation uranium is very much under government scrutiny.
How does this affect your company?
Management
How long have they been in the business? About 20 years Is good enough. What type of experience do they have? Does their experience concern what their doing now. For instance someone who was successful in copper might not be successful uranium. Or some one who triumphed with an exploration company might not have the knack for a mining company. They are both totally different jobs. Do they have entrepreneurial minds? Are they going to succeed? Are they concentrated on the company your looking at.
And one more thing do they have the skills personality and temperament needed for what they want to accomplish.
Property
Is the property big, does it have the potential to have a large resource? Bigger project are most likely to attract interest from majors. Big mines make more cash and have the same amount of risk of something breaking down. How deep does the resource start? If the resource starts 500 metres down… well that’s a long ways. Unless it is an Insituleach project, you’re going to have to dig down there! If you want that mine in production you going to need power. How far is the nearest power source? Does the property have easy access is their a road or whatever going up there? Metallurgy, are the minerals easy to separate? And finally is the property subject to any environmental concerns. depending on the type of mineral being mined the distance from the mill and or selling point is also important.
Financing
The third evaluator calculates if they have enough money or have access to sufficient capital (without diluting their stock to nothing) to do what will ultimately raise their share price, drilling a couple holes starting a mine etc…
A company’s ability to do this usually depends on management’s past track record and the feasibility of their project. Well in fact, most of the factors mentioned in this essay are what determines how easy the company can finance.
Potential
Potential really means how high can the stock price go up. If you got two company’s that have the same chance of being losers, and the same chance of being winners and the one, if it is a winner, It’s going to rocket ten times higher then the other one… well you know which one to buy. A speculative audience can value a company with big potential in a hot market extremely astronomically.
Share Structure
This part of the evaluation deals with number of shares outstanding, fully diluted, warrants you know all that kind of stuff. What I would like to see here is that the company has not been diluting their stock excessively, that there isn’t a bunch of warrants or options coming on the market in the next while. As well as when they finance they do so at high prices then I’m pretty much satisfied.
Promotion
If you have a company with every thing going well, pulling out crazy intercepts in a good jurisdiction with no problems at all, but nobody knows about it then the share price will not go up its as simple as that for a company to be considered as doing enough promotion. It must go to at least three major conferences a year. They must make at least 2 analyst/investor tours of their property each month. Every year Management should spend at least ten thousand dollars on external promotion services. And of course it helps a lot if the company is in the news a lot for some reason or other, or if maybe a guy in the company is famous.
Politics of Place
This part of the equation figures in risk from the country where they are operating. Like if there is risk that they might be kicked out of the country because the wrong politician has become elected. You also want to find out what the risk factor is that the project might be shut down because of environmental problems, environmental laws vary from country to country and from province to province. For instance it is very difficult to permit something in California (environmentally speaking) then it is in let’s say Nevada.
Value
Does the company’s holding’s justify its market cap? Do this, property + cash – debt. Let’s say company X has 1 million ounces of gold, first you have to check what all the other companies are being valued at per ounce in your company’s development stage. If it’s, let’s say around 40 an ounce then you multiply that by one million. 40,000,000 + cash lets say 10,000,000 – debt 2,000,000 and Ta Da! You got categorized value in comparison to other stocks. This is just so you have something graspable. Also, check how the market cap is, compared to other similar stocks, if it’s more, then determine for yourself, how much of this is attributable to the other positives, that this particular stock might have.
Timing
Don’t pay too much for a stock, if you think you can get less for it. Act smart, just because you read some fantastic report don’t rush out, almost trip on the stair (if you have any) and buy buy buy. Use your common sense unless it really is an infallible stock. Chances are you might be able to get in at a better price. By waiting, for example if you found a stock which last week let out motherlode type drill results. And the stock shot up, well, assuming they aren’t in danger of an immediate takeover, and don’t have any additional properties to spout news from, and their next drills are set to come out in five months. There is a slight possibility that the stock could cool down between now and then. And that’s when you buy!
Additional Notes
Psychology of the stock
Look on the forums what do people think about this stock. If it’s a small stock these people can be what makes the stock move
Manipulation from dirty sources
This can as well as pushing the stock around. Also Makes people get “rumours” sifted out by the manipulators make sure you’re not a victim of this.
Make sure they are making real progress on the ground
Keeping an eye on what’s happening with private placements can help in timing.
It’s positive if the management own a lot of shares, it’s even better if they are buying more.
A helpful way of keeping track of a stock is to sign up to the investor relations Firm promoting them.
Try to buy a company before it gets out.
goldanalysis.co.cc
© Kyle Demski 2007
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