Successful resource investors have to make their way past a lot of money pits before they find a stock that will make it to the top. In this interview with The Gold Report, A Resource Report Editor Matt Badiali shares the red flags wedged in Preliminary Economic Assessment and points to a handful of companies that are building shareholder value.
The Gold Report: You've said that natural resource investors need to be open to opportunities wherever they occur. How do you separate the hype from fact to determine a real bargain?
Matt Badiali: My secret is research. I'm a scientist. I love digging in the dirt and looking in places where other people don't want to look for opportunities. I also have a secret weapon in that I work with a guy who is a forensic accountant. He can read a balance sheet and annual and quarterly reports and spot the trouble spots. He warns me of any potential land mines.
TGR: What are the red flags you find most often?
MB: Debt is a big one. You have to be wary of natural resources companies piling on debt. Miners have no say in what they will be paid for the material they are selling. If you mine gold, you are paid whatever the gold price is that day.
You are a price taker as opposed to Apple, which sets the price of the iPhone at $700 and that is what it thinks the market will pay. Debt is a fixed cost that has to be paid regardless of the price of gold or silver. Investors have to figure out whether a company can sustain itself based on the cash coming in and the money going out.
TGR: You also have the luxury of being able to visit these projects and talk to the CEOs, to the geologists. Conferences like the Sprott/Stansberry Vancouver Natural Resources Symposium, where you will be speaking, allow investors to talk to company representatives. We recently interviewed Rick Rule and Porter Stansberry.
Rick talked about some of the questions that he asks when he's face to face with companies. What are the questions you think investors should be asking when they get the chance to meet with a junior mining company representative?