I'm not implying that Tony has any sentiment or holds Promesa.
"Finding the Next Ten Bagger
This is what I am looking for now in junior companies,
· Those with a share structure conducive to share price upside. Many of these will have <100m shares on issue, however it should be noted that once a company enters the mainstream at times it pays to have more shares on issue. The ideal scenario for me is a company capped under $20m that drills into major orebody and goes $200m+ before the fun begins. Whilst the tighter the structure the better you should not write off other companies completely as speculative bubbles can send many stocks into orbit. Those that continually dilute to weak hands are the ones to avoid.
· With a junior resource companies the two most profitable phases for investors are buying prior to a major discovery, or getting into a stock during the latter stages of mine construction where you benefit from the production uplift. Buying at the height of the exploration madness may turn out profitable in the end but it is an avoidable waste of your life. Unless the market has completely missed a significant discovery, this is where I will often lock in some profits and look for the next opportunity.
· Management is critical. I often look towards those who have come from major companies with a history of success in exploration and/or exploration. Some Directors develop “rock star” status and it is best to get involved early before they end up on more boards than Kelly Slater. Over many years I have gotten to know a number of geologists, company Directors and management teams that are focussed on share price growth rather than hanging around for the lifestyle.
· Grade is paramount. Whether it is gold, zinc, lead or even industrial metals I have found that world-class deposits regardless of the Greek crisis will end up being developed or on-sold. Companies that have promised low cost production a number of years out that have actually delivered are the types that tend to twenty bag and then some.
· Pay attention to geological clues that are regularly presented in ASX announcements. Many company announcements are discarded as they come across as being too technical. It is often the low grade RAB hits or even soil sampling that leads to major discoveries. I admit that I didn’t see 48m@ 154 g/t gold coming from RMS at Wattle Dam in 2007 but the deposit was showing considerable potential prior to the big one.
· Although quoting similar styles of mineralisation may be seen as over promotion, you should look for references to major discoveries such as Olympic Dam, Prominent Hill, Carapateena, Merlin, DeGrussa or Hillside (major Australian discoveries).
· Be aware that bubbles are dangerous events and are not the norm. When speculative markets fire up there is always the temptation to chase the high flying stocks, however the risk here is becoming addicted to buying stocks lacking in fundamentals. The “fear of missing out” is more powerful than market sell offs so for the stock pickers amongst us it may be prudent to allocate some funds to these opportunities during the blow off phase. The worst thing for your investment career is hold onto the bombed out “fad” stocks. I liken it to sticking to the one poker machine in the hope of winning a mini jackpot on the next spin.
About the Author: Tony Locantro is the Managing Director of Locantro Capital Pty Ltd, Locantro Asset Management Pty Ltd and Gold Australia Pty Ltd. He entered the stockbroking industry in 1998 and was an Associate Director at Patersons Securities Limited until 2010. In 2001 he authored The Green Room: A Guide to Speculating on the Australian Stock Market and is the current author of the newsletter, Locantro’s Life. He has been quoted extensively in the financial press and Dow Jones Newswires, has written articles for Kitco and other websites and also appears on Sky Business News. He is known as a passionate and respected supporter of the junior resource industry.
PRA Price at posting:
25.0¢ Sentiment: Buy Disclosure: Held
