Investing in the mining and precious metals sectors can be a difficult place. The small investor has three choices: large-cap mining companies that offer slow to moderate growth and attractive dividend yields; small, speculative mining stocks with no revenues and a high degree of risk; or sector focused ETF's and mutual funds.
An investor choosing large cap mining and precious metal stocks makes the risk/reward tradeoff. Slow to moderate growth and lower returns for less risk and the ability to sleep easy at night without worry of their stock going out of business. They will typically receive a nice, steady dividend stream and returns but forgo the large returns that come out of the junior sector.
If the average investor decides to test the waters of the junior resource market they have different challenges. Currently, there are hundreds of small stocks trading on various exchanges. Like the Internet bubble of the 90's where most companies never turned a profit most prospective deposits will never become mines. How does a small investor know if management is qualified to bring a deposit into production? Does the small investor know how to read a drill report? Do they understand the difficulties of bringing a mine into production? How do you know then if the stock you chose was the right one? You could hit it big or you could go bust.
You can choose to go the route of ETF's or sector specific mutual funds but just how experienced are the managers? Most ETF's and mutual funds are low risk investments and hence filled with large cap stocks. Juniors are dubbed too risky for their tastes.
But there is one stock which does not fall into these three companies and offers investors the chance to invest in junior mining companies and that stock is Pinetree Capital.
Pinetree Capital (OTCPK:PNPFF) was founded in 1992 by Sheldon Inwentash with $4 million of initial capital as a venture investor in early stage technology companies. In 2001 they survived the tech bubble and began focusing on the resource sector in 2002 and 2003. Pinetree's strategy is to build a macro position while searching for small cap opportunities. Through their 50% owned subsidiary, PowerOne Capital Markets Limited (PowerOne), Pinetree can act as an agent to help raise capital for small cap companies and provide financial advisory services to assist in moving through the commercial production process. PowerOne is the key differentiator between Pinetree and a hedge fund, mutual fund, or ETF. PowerOne helps junior companies navigate the difficult area of fundraising which often can be the make or break for a junior. Raising money in the capital markets puts junior mining companies at the whims of unscrupulous brokers who prefer the current flavors of the month. By helping sheppard their investments from drilling to production Pinetree helps create their exit strategy in addition to building the business.
As of December 31, 2006, Pinetree had 34% of is portfolio invested in Uranium stocks (portfolio return of approximately 550% last year) and an additional 32% is invested in the Precious Metals sector (portfolio return of greater than 350 %.) The portfolio is available through the regulatory filings and news section on the website.
For those concerned about portfolio valuations the process is transparent and available for review on the website and in their regulatory filings as well.
One could say that Pinetree acts as a sophisticated closed end fund. The shares currently trade at a premium to the companies NAV even though its investments can be deemed speculative. US investors would have to get access through the Pink Sheet listing but the company has a market capitalization of roughly $1.1 billion US dollars so this should ease investor's anxiety over its size.
Sheldon Inwentash currently owns 21% of Pinetree Capital and company management (including Mr. Inwentash) owns approximately 23% basic; 28% fully diluted of shares outstanding. Management has a good sized stake, large enough where they will continue to work in the best interests of the shareholders.
Pinetree and Mr. Inwentash have been around now for more than 15 years. That is a longer track record than most fund managers anywhere in the world.
In short, if you are considering investing in the junior resource sector but do not have the time to do the legwork then Pinetree is a good place to start.
Disclosure: The author of the article owns shares of Pinetree Capital
PNPFF 3-mo chart