Catalysts can move mining equities substantially up or down, so being aware of upcoming news and events is key to portfolio management. Sagient Research's Jocelyn August advises investors to look for miners with good management teams that are transparent in their announcements and consistently meet their deadlines. In this interview with The Metals Report, August outlines the eight biggest catalysts in the mining space.
The Metals Report: Which catalysts continue to positively move share prices in the small-cap junior gold equities market?
Jocelyn August: Ones that demonstrate the economic viability or the potential success of projects, like the announcement of positive feasibility study results, the completion of a feasibility study, the announcement of favorable drill results and the announcement of favorable regulatory permit decisions.
TMR: Rank the following eight catalysts on their likelihood to move a stock price: drill results, publishing of resource estimate, publishing of preliminary economic assessment [PEA], publishing of feasibility study, a change in the board or management team, investment by a strategic partner or investment bank, commodity price increases or decreases and the issuance of a mining permit.
JA: We generally don't follow or have analytical numbers on changes in management teams or commodity prices, so I'll rank just six of those.
These numbers relate to the stock prices the day after a catalyst has occurred: Investment by a strategic partner or an investment bank moves a stock up or down by 8.5%. This is a positive or negative number-an absolute number.
Drill results are after that, moving a stock by 7.92%. The issuance of mining permits moves a stock 7.36%. Feasibility study results or publishing of the feasibility study moves a stock around 7.2%. An initial resource estimate moves a stock 7.1%. There's a drop-off in the stock prices for an update to the resource estimate. The initial resource estimate really gives the big pop. The PEA is around 6 or 6.5%.
TMR: Did we miss any others that could be meaningful to investors?
JA: A go/no-go decision-a green light/no green light decision-is actually the largest. That doesn't happen as frequently, but it can move the stock an average of 9.918%.
A completion of construction announcement moves the stock around 7.8%, more than a production start does.
TMR: Have some catalysts become more important than they were when you first started?
JA: We started following the natural resource space in 2008. Since then we've seen minor changes in the rankings based on what catalysts have occurred and how different companies have moved. But catalysts that show a project's economic viability and the amount of the resource present remain the large movers.
TMR: Have you noticed any jostling of the rankings over the last four months?
JA: Really positive catalysts move the share prices more in this price environment. Whereas a positive feasibility study or drill results would usually move a stock 10-15%, they're now moving it upward of 15-20% for some of the junior miners, despite the depressed price of gold.
TMR: Why don't you factor in things like commodity prices? Why do you eschew that?
JA: We follow anything that can be anticipated and that is publicly available information-something you can put a time frame on, like H2/13 or Q4/13. A commodity price is more of a trend than an actual event.
TMR: But a change in a board or management team is public information, and you can track that kind of thing.
JA: But it's not an anticipated catalyst that has a specific time frame. You can track it afterward, but you can't anticipate it.
TMR: Sagient Research also publishes information that tracks private investment in public equity investments by large institutions. Do certain institutional investors move junior stocks higher?
JA: Deals with named institutional investors move the junior mining stock more significantly than deals without named investors. When a large institutional investor publicly invests in these companies, the stock price can move a lot in the short term, within a week of the announcement. Some large investors are Ironridge Global Partners and Brookfield Asset Management, which just invested in North American Palladium Ltd. (NYSEMKT:PAL). There was big movement after that. That information is available on our PlacementTracker website.
TMR: What types of small-cap mining equities should investors seek in this market?
JA: Look for a good management team that is transparent in its announcements and consistently meets its milestones. If it says it's going to finish its feasibility study within six months or within H2/13, it makes that deadline and announces its results within that deadline. Even if it has a negative or disappointing result, that shows it has a good management team that is setting and meeting goals.
TMR: Does CatalystTracker go into intangibles?
JA: When we track upcoming catalysts, we put in a lot of information about relationships with the local community. For permitting decisions, particularly, we'll put in information about court decisions or decisions by the local government. For example, Pascua Lama keeps getting pushed back, and things are happening within Chile that are making it a not very positive experience for Barrick Gold Corp. (NYSE:ABX). Even if we're tracking the production start catalyst, we will include information about the permitting and the project's environmental aspects.
TMR: Are you following other mine commodities?
JA: We follow silver, copper, nickel and iron.
TMR: What's moving the big names in the gold space?
JA: Earnings seem to move them the most, moving the stock 5-6%. Obviously, the stock price has a lot to do with it. With a larger stock price, events won't move the stock the same percentage as they will with a smaller junior miner. For companies like Barrick, announcements about particularly large projects can also move the stock price.
TMR: Does Barrick have any positive catalysts coming up?
JA: Barrick has been scaling back its exploration and development in light of the gold price.
TMR: Do you have any parting thoughts on catalysts, maybe a tip for investors?
JA: A lot of investors are scared. Obviously, there is a lot of negativity, but if you can find the companies doing good things, there is still money to be made. You can't just throw a dart and expect to hit one the same way you used to do, but you can find good value and investment opportunities. You just have to find the right companies and the right catalysts.
TMR: Jocelyn, thank you for your time.
This interview was conducted by Brian Sylvester of The Metals Report and can be read in its entirety here.
Jocelyn August is currently the senior analyst and product manager for CatalystTracker, Sagient Research's proprietary research product of focused on identifying and analyzing the future events that will materially impact publicly traded companies. In her five years at Sagient, she has developed expertise in the highly event-driven medical device and diagnostic sector. In addition, she spearheaded the development of a new Natural Resource Industry product within the CatalystTracker product line with the publication of the "Catalyst Impact Study: Natural Resources Sector." Outside of Sagient, August was named the director of communications for the San Diego Professional Chapter of MBA Women International. August received a Master of Business Administration from the Rady School of Management at University of California, San Diego, and graduated cum laude from the University of California, San Diego, with a Bachelor of Arts degree in sociology.
1) Brian Sylvester conducted this interview for The Metals Report and provides services to The Metals Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
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