Silberinfo: 
How do you analyse mining and explorations stocks? 
What criteria do you apply, and what models do you use for the valuation of their projects and assets?

 

David Morgan: Basically two ways, the 
first is for producers and this is a standard financial model based upon net present value. 
We want to see how profitable the mining company is or is not, 
what potential is has for growth and what political risk does it have due to location. 
Of course we look at management, the mission statement, how liquid the company is and the balance sheet. 
These are companies that fit into our top of our Asset Allocation model. 
This is a dynamic list and does change but most the companies that are able to achieve this level in our model 
are solid and make good investment sense as long as the commodity bull continues.

The junior sector is almost impossible to apply any exact analytical model at least that 
we know of and we have tried. Mostly these are story stocks and we do our best to 
investigate the management, financing, location, underwriters, past history, promotion budget, 
previous company affiliations, what others in the industry have written, 
if the project or projects are open pit type or underground potentially. 
We do not focus too much on how many ounces per share because it can be useful but 
only when comparing similar situations 
for example some of the best investments are underground mines but based on ounces per share 
an investor would miss out entirely on this when in fact the company share price soars. 
There are so many misunderstanding on how to evaluate a project it is impossible to address 
without spending hours in an educational environment. 
We also look at the metallurgy and infrastructure. 
Certainly this does not cover everything but picking juniors is much more of an art than a science and 
in my view will always be that way.