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wombat777

11,249 Posts.

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14/02/21

13:58

Post #: 50969377
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Originally posted by wombat777 ↑

Some tips - opinions only and do your own research:

Crystal-ball gaze - look at what a company is doing now in terms of strategy and from that try to infer what they will be doing in 3-5 years time

Look at how long peers in the industry take to achieve a value inflection point. For goldies I use the progress of GOR as a benchmark ( for your own learning it is worthwhile reading the history of announcements for their project - all the way from first resource and then scoping study to DFS, financing, construction and then commissioning).

Value inflection point is generally achieving revenue, positive cashflow or a buyout

Use https://www.marketindex.com.au/ as a starting point for your research. It's the fastest way to research any stock. There's lots of useful data on fundamentals - Top 20, director bios, etc, etc. You can quickly browse over a decade of announcements:

Determine what their primary asset / strategy is. Then go back as early as possible to the first date the asset was acquired. This is fast to do at Market Index.

I like to look at the history in chronological order. You can then understand how the story evolved.

Case in point for ADN. I was holding ADN from late 2017 for what they were doing with gold. Then it was announced around April 2018 they were getting into HPA. That announcement referenced Minotaur. So I went through a decade of history on Minotaur to find everything Minotaur had done with the Poochera project.

Create a spreadsheet with tally of all the shares and other listed and unlisted securities (such as options and performance rights). I order everything by date of expiry and tally up the funds that will come in from options. What you are calculating is fully-diluted share issue.

This is how my spreadsheet currently looks for ADN.

View attachment 2911997

Whenever there is a new Appendix 2A announcement, update your tally.

The purpose of this is that you are trying to workout number of fully-diluted shares when a company reaches a value inflection point, such as achieving first revenues, achieving positive cashflow or achieving a buyout.

In your speculation you are trying to work out how many additional shares are likely to be issued. For a typical mining project allow 10-15% dilution each year.

For ADN I am currently assuming further dilution of up to 15%, however I think they will comfortably come under this as they will be able to secure debt funding ( they are working on a Definitive Feasibility Study to a "Bankable Standard").

In a typical mining project 3 years from commencing construction I would assume 30 - 45% dilution.

In mining projects there is lower risk if you focus on companies that already have a resource and are progressing it through to and then through studies. Be careful of drill plays unless there are some good drill results or historic data that give you confidence the company will define a resource that will be economic for mining ( you need to look at peers with the some deposit style ).

In mining focus on the big picture and that is the likely economics. Anything likely to produce at better than industry averages on margins gets a big tick from me.

In mining be careful of jurisdictional risk. Fewer investors are willing to invest in projects outside prime jurisdictions. The same applies for financing - projects in high risk jurisdictions are more likely to require very dilutive funding such as convertible notes, or be fully funded through capital raises.

Try to quickly determine if the companies you are looking at are lifestyle companies. That is never achieving much for shareholders in terms of progressing assets. They will mostly try to keep funding their salaries. If you see evidence of asset churn with no real progress tread carefully. Asset churn occurs in all sectors of the ASX.

Learn how to do basic peer analysis to compare value of companies based on what is in the ground. In gold companies for example what is the $/oz value when you divide the market cap by the number of ounces in the ground. This approach helps to find undervalued companies.

Be careful buying anything without determining a value relative to peers ( this needs to be done on something measurable such as a resource ).

Management

You want enthusiastic management. They don't have to be perfect. They are human. They will stumble along the way. Be patient. It takes time to develop and implement a strategy.

I like to apply a constructive feedback test. After doing all your research you will have lots of questions. So call up management and have a chat. Show them through your questions that you have researched what they are doing. Be friendly, not confrontational. The good management teams will help you to better understand what they are doing and will also take feedback on board.

This is easier to do with small companies than it is with big companies, however its the smaller companies that have the greatest potential for growth.

Risk:

In mining stocks without a resource are high risk

In biotech stocks at preclinical stage are high risk ( you need to evaluate existing preclinical and clinical data to determine risk and probability of success )

Terrible / arrogant / incompetent management can ruin what would otherwise be good investments.

Many stock suggestions will come from word of mouth. Use methods above for you own evaluation.

Consider a portfolio cleanup. I've come to the opinion you are better on a concentrated portfolio of growth-potential small caps. Looks at stocks from perspective of probability of multi-bagging. That means finding undervalued companies with a large amount of upside and a high probability of upside. I think about 4 to 10 is now the sweet spot. Less than 4 and you are at risk of not being diversified enough. More than 10 and you can't keep up with the research and newsflow - you also reduce the chance of life-changing returns.

If you are in your early 20s turning $10k into $50k to $100k is a life-changing return.

If you are in your 30s/40s/50s turning $100k into $500k is $1M is a life-changing return.

The Kelly Criterion was first shared in another stock thread but it's a good way to think about how much of your capital to put in any one stock
https://dqydj.com/kelly-criterion-asset-allocation-calculator/

To keep my investing balance I also invest in dividend stocks. This is useful as companies that consistently grow dividends gives you insights into what makes a good investment as an emerging smallcap.

My signature has some ideas for other stocks to look at.

Expand

I missed a few things:

CAPEX burden. The higher the CAPEX the higher the technical risk and also the higher the hurdle to achieve financing.

Look at ratio of NPV to CAPEX, Startup CAPEX to Market Cap and do peer comparisons. This gives insights on the likely hurdle to achieve project funding. The more expensive a project is to fund relative to market cap, the greater the dilution.

Look at payback periods. Try to focus on projects with less than 2 years payback. There is lower risk of an extended period of debt burden.

Look at Canadian NI 43-101 format feasibility studies. They have a lot more detail than studies released to the ASX. You will learn a great deal about all the elements of a mining project - resource and reserve estimation, economic analysis and so on.
Last edited by wombat777: 14/02/21

ADN Price at posting: 30.0¢ Sentiment: Buy Disclosure: Held
85 Upvote

32 Great analysis

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Last 0.8¢		Change 0.000(0.00%)		Mkt cap ! $27.14M

Open	High	Low	Value	Volume
0.8¢	0.8¢	0.8¢	$13.00K	1.651M

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No.	Vol.	Price($)
51	22886501	0.7¢

Sellers (Offers)

Price($)	Vol.	No.
0.8¢	8867069	11

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No.	Vol.	Price($)
52	22886622	0.007
22	10091863	0.006
15	10601333	0.005
2	5000000	0.004
3	8333333	0.003

Price($)	Vol.	No.
0.008	9532523	14
0.009	27580028	22
0.010	23847978	14
0.011	16613479	8
0.012	15258100	7

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