⛏ How to pick good management teams

Greetings Survivor Contrarian,

This is The Next Big Rush, your daily drop of mining / energy news, with your Sunday edition of Q&A.

Dear Indecisive Punter,

When it comes to separating the wheat from the chaff in this space, you are actually going through different layers of due diligence.

1- Are board and management honest people?

2- Are they competent?

3- Are they going to have enough luck / stickiness?

Needless to say, you want all three.

Unfortunately, If you only pick one, it's not enough.

So here are a few markers of success vs failure. These are to be taken on balance and aren't black and white, but too much of the negative points is a definite red flag.

NEGATIVES

• Management makes above average pay compared to peers regardless of results.

• Management has too many roles in too many companies, always drawing remuneration.

• Project has been recycled many times into different companies.

• No insider buying.

• Insider selling.

• Promises broken.

• Company unable to raise enough for next steps.

• Too much marketing spend.

• Not enough marketing spend.

• Skipping crucial steps to production.

• No news for several months (unless company strategy is to simply hold assets in a downturn).

• Management sit on news / results for too long or simply don't publish them.

• Company keeps rebranding to whatever is hot.

POSITIVES

• Management has relevant experience to the work they're doing today. (Geos from majors seem great, but if they've never made a discovery from scratch, it's hard to tell their accomplishments - anyone can find something if given enough of a budget).

• Low G&A costs compared to drilling / developing.

• Name comes up positively when talking to other companies in the same area.

• Management promotes but isn't full of impossible promises. (This is an important point. Not promoting the story at all, in a sea of many companies and not enough investors, management will pay dearly in cost of capital. A higher share price demands a higher price for both private placement share and warrants, thus diluting current shareholders less. This is part of management's fiduciary duty. On the other hand, making wild promises will set off people's radars and will come back to bite your butt).

• Diverse board with wins under their belts.

• Geological model that gets clearer with time.

• A sense of urgency to get stuff done.

• Ability to move on if project doesn't work.

We've found that in general, the worst and most seductive way to pick a good company is to talk to the CEO. Their job is to sell a great story, raise money on that story, and push the company forward. They know what to tell you and what to avoid. It's often more useful to speak to others about a company - but never one person. Ask as many as possible for possible past experience with the team or jurisdiction - there will be skeletons in the closet for all of them. You just need to pick skeletons you can dance with.

And last but not least:

The thing that kills any company is the stuff they don't put on the presentation.

So ask.

Happy speculating! Tomorrow might be savage.

The Editor

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational/entertainment and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.