In the Case of Mining Companies, It's Not Good Enough to Be Good

Having spent a good chunk of my career involved with major construction projects, I have gained experience in the Engineering, Procurement and Construction [EPC] timeframes of a variety of projects.

The reason we are bringing this to your attention as investors is in response to our mailbag, which currently has a theme of:

I bought this mining company a couple of weeks ago and they have not produced any metal yet.

There would appear to be a real problem of understanding and of communication. The investor, to some extent a gambler by nature, brings with him a ‘Track’ mentality. He picks his horse and places his bet, taps his fingers as he awaits the starting gun and bang they are off! A few minutes later he has a result. Fast forward to today and he has heard about the new ‘hot’ money making precious metals sector and he dives in hoping for result by tea time. The result of the mining companies' efforts for that day are not visible and even less measurable, so he rings the Managing Director and is stunned to learn that he is clad in a hard hat and boots down a hole in an unpronounceable name of a place in South America. Having not done a great deal of research he is worried that the MD is in Slowbovia, a country stuffed full of revolutionaries baying for the wallets of the investor! Our gallant investor is now having second thoughts about keeping his hard earned cash in such a precarious investment vehicle.

Does he stay or does he go?

The more enlightened mining companies have to some extent realized that they have a problem and have employed someone with ‘Investor Relations’ skills. An unnecessary overhead, you may think, but the best opportunity in the world will whither and die without the sunlight, in terms of exposure that these people can bring to this party.

Investors need to be fed and the news flow is that conveyor belt which delivers either nourishment or starvation. The frequency and the quality of content are absolutely vital to the well being of an investor.

In terms of frequency, a precious metals mining company should never go more than two weeks without a press release. If the company's last press release stated that they are about to commence a drilling program on Supa-project and it will last for three months, then it is no good waiting for a fantastic set of drill results before they prepare another news release. That company needs to get a grip of whoever is in charge of Operations and interrogate him until they have a breakdown of the next three months in activities.

Companies can now measure the progress and prepare a news release of some substance. If they have a broad-brush program without the detailed breakdown to back it up, they are, in our opinion, amateurs. The success of a company's project should be predicated upon ‘bottom up’ detailed planning and scheduling data. When we approach companies, it soon becomes apparent that their mission might be clear, but their road to it is fog bound, so the arrival time is clouded in uncertainty. We are only talking about time, you might say, but believe me - Time is Money.

We will now take a quick look at the quality of the news flow. Press releases that talk about an everyday appointment or stock options for Directors are only stocking fillers and in terms of enthusing your customer, the investor, they are about as much use as a chocolate fireguard. As investors we want detailed content, facts, figures, target dates, actual dates and at least some brief explanatory notes. After all we are the owners and deserve to be informed. Without this basic data we are with uncertainty, which is a precursor to negativity. When negativity calls we vote with our feet and withdraw our financial support.

To be a good mining company is not good enough, a company needs to tell us and keep on telling us how good they are by demonstrating their achievements. Savvy investors are aware that the company has many problems to solve and they appreciate being made aware of these problems and the proposed solution, so communicate. Wall papering over the cracks only delays the inevitable and breeds distrust. Lose the trust of investors and the company are history.

To conclude, as investors we need to acquire some patience and understanding of the difficulties inherent in mining and mining companies need to hone their communication skills. This would go some way to raising confidence levels and stemming the erratic movement of funds.