Tom Szabo, an investment strategist and principal of MetalAugmentor.com, invests in miners with base metal, specialty metal and rare earth element projects because the market isn't quick to notice them—meaning it's easy to get in early on a great project. His Peerless system helps to identify opportunities based on unique attributes. So, which metals and rare earth companies are set to strike in this volatile market? Szabo doles out tips in this Metals Report interview and explains why he likes companies that have yet to achieve market favor.
The Metals Report: As an investment strategist at MetalAugmentor.com, you use the Peerless system to rank equities in the mining space. What exactly is the Peerless system?
Tom Szabo: Our system is a qualitative ranking of companies. It's a binary system: A company is either peerless or it's not. However, we do have companies that we consider "candidates" for peerless. The Peerless system takes into account success factors. These success factors may be different based on the stage of development of the company. An exploration company's success factors will be somewhat different from a producer, although they will share some similarities like management and corporate strategy.
TMR: What are some non-precious metal equities that are providing interesting opportunities in the current cycle?
TS: In base metals, we are more interested in the exploration or earlier-stage plays. One of the reasons is the market doesn't tend to add a large premium to a non-precious metal discovery until the bigger players have had a chance to wrap their arms around the story. Often the proper valuation doesn't appear until the project becomes an obvious candidate for being taken out. While the wait can sometimes be frustrating, it also allows astute investors to be positioned ahead of the crowd.
An example of a peerless company in this space would be North American Nickel Inc. (NAN:TSX.V). This is an exploration company that's active in Greenland. It has made a potentially district-scale discovery of a magmatic nickel-copper-cobalt-platinum-group-metals system with some similarities to the Sudbury Basin in Ontario, Canada.
TMR: Is Greenland considered mining-friendly?
TS: It is. The population seems to be pretty pragmatic. Most people live in areas away from where the exploration and deposits are located.
TMR: They tend to be very protective of their glaciers and things like that, however.
TS: Yes, this is true. You don't want to be around the areas where there are heavy glaciers. There are quite a few mining projects elsewhere, however. You can develop projects in Greenland if you approach it in the right way.
The area where North American Nickel is active along the southwest coast doesn't have year-round snow. There are also huge areas elsewhere in Greenland that have not been explored because recent glacier melting has just exposed these areas, some of which could be world class.
TMR: What's the next step for North American Nickel?
TS: It has found several areas of mineralized conduits, including the Imiak Hill complex. It encountered massive sulfides across decent intervals deeper in the system. Assays are confirming the high nickel grades that have been anticipated. It's an encouraging development that's accounted for a run-up in the share price.
TMR: You've suggested investors play North American Nickel through VMS Ventures Inc. (VMS:TSX.V), which owns a large stake of the company.
TS: VMS Ventures owns about 25% of North American Nickel. At this stage, the leverage isn't that great, but if North American Nickel starts to run you'll see the leverage start to work.
VMS also has the Reed Lake joint venture with HudBay Minerals Inc. (HBM:TSX; HBM:NYSE).