Geo Tips to Weatherproof Your Portfolio – Part II – Fat Tail Daily

Last week, we began to explore the world of drill results.

Outlining the steps involved from the initial planning of where a geologist wants the driller to go, how that sample comes out of the ground, and how it ends up at the lab.

And then finally, in the ASX announcement that you read.

As I described, this is the bread and butter of junior mining companies.

Testing new targets, analysing the results, and, on rare occasions, announcing a discovery that could lay the path for a future deposit.

But another critical step we haven’t touched on is the planning stage, where the rig will ultimately drill and potentially find mineralisation.

An exploration company SHOULD spend months, sometimes years, planning the areas to test. That’s because drilling is the most capital-intensive undertaking these companies can take.

By the way, we’ll look at what goes into the drill-hole planning stage in a future update.

But for now, let’s continue from
our previous edition…

You’ve seen how drill results are gathered in the field, sent to the lab, and the results returned to the company. If you haven’t, you can revisit last week’s piece here.

That information is then delivered to shareholders via an ASX announcement.

But once you read it, how do you know whether those results are fluff or the potential makings of a new deposit?

That’s the key element that most investors struggle with, since most don’t have a foundational understanding of geology.

And unfortunately, that lack of knowledge typically gives the company extra ‘creative license’ to embellish the results and find a positive spin. And that’s regardless of what they’ll pull from the ground.

Pay attention to the wording in these ASX announcements; virtually every drill campaign comes with a positive pitch.

As far as management’s concerned, they need to give existing shareholders every reason to hold, and prospective investors a motive to buy!

That’s why you should view these ASX announcements as marketing tools.

Junior mining stocks need your money…

So, make them earn it!

Given that there are thousands of listed junior mining stocks in Australia and overseas, these companies are constantly pitching for your money.

Whether you’re reading an ASX announcement, attending a mining conference, or reading a piece from a mining newsletter, it pays to put your due diligence cap on.

By the way, most resource-focused newsletter businesses in Australia are paid by mining companies to promote their business. We don’t!

Our business is subscriber-based; that means our readers are our only source of income, which keeps us entirely independent.

And that’s a rare business model in Australia.

Alrighty, so how do you know whether you’re buying a company with REAL prospects, or a floating dud?

A stock capable of turning ounces in the ground into a cash-generating business?

Well, as I said, the first and most critical step is to familiarise yourself with drill results.

I suggest signing up for company alerts; numerous platforms offer this service… When that drill hole announcement hits your inbox, read it.

Even if you don’t own that particular company.

To begin with, these results might not make much sense. Yet over time, you will become familiar with the types of results that MOVE the market.

And that’s the key…

Use the market as your barometer.

Now, you might not have an exact handle on the geological details outlined in these reports, particularly the fine print and footnotes.

But, as an investor, you can observe the market’s reaction in the days and weeks following a drill hole result.

And that will give you a sense of what moves the dial in the junior mining market.

To simplify this even further, start by looking at the drill results for just one commodity; copper or gold is a good place to start.

Jot down the intervals and grades that resulted in significant market moves, and then use these as your future benchmarks.

Then, over time, you will gain an accurate sense of what drill results are capable of moving the market over a sustained period.

This is a fast-track method for distinguishing noise from real results. That’s because you’re using the market to gain that insight. Not countless hours of trying to understand technical geological theory.

And once you become familiar with that first commodity, you can expand into the more nuanced metals, like lithium, nickel, and other critical minerals.

This is all about utilising your time

You could read a dozen or so geological textbooks to understand what an economically viable drill hit might look like.

And in all probability, most of the information will go over your head unless you’ve had some foundation in the lingo that’s involved in geology.

But my suggestion is this: just use the market to do all of that heavy lifting for you. One disclaimer, though, the market isn’t always right!

Especially at highly speculative times when non-expert investors pour into the junior mining market, pushing prices higher on the back of any reasonably sounding drill result.

But under normal conditions, the market can teach you a great deal.

Just follow its lead and find out what drill hits move the market. It can be as simple as that.

But this will still take some effort on your behalf; there’s never a free lunch in investment success.

Nevertheless, this is one effective tactic that can fast-track your knowledge and put you ahead of most investors (and even geologists) who fail to distinguish between good, average and terrible results.

By the way, if you want to fast-track your learning with our model portfolio (while supporting independent analysis), you can follow more of my work here.

Until next time.