I was thinking about investment frameworks today. I’ve never explicitly laid out my own process. If I had to I’d say the following points are the most important in my framework (mining related):
- The project has to score well (decent grade, IRR, preferably in a good jurisdiction, tried and tested mining method, simple process). There can be complexity but the simpler the better.
- Value has to be a concern. There’s so much uncertainty in junior investing. We need to get 3-10x payoffs on the winners to offset the inevitable losses.
- Momentum. This one is tougher. I’m not sure where I stand on this. Revaluations happen fast.
- Increasing base. This can mean production, resource, reserve. Not picky.
- Preservation of ownership percentage. I get that dilution is going to occur. I’d just like to get under as many warrants and options as possible.
I was looking at some valuations today, single asset development projects.
One that jumped out at me was New Polaris. I’d not heard of Carnac resources until today. They released a technical report on New Polaris in March.
Valuation: They have an enterprise value of ~$9 million. The post-tax NPV5% is ~$210 million; works out to a EV/NPV value of less than 5%. Well this is interesting.
Now obviously production, if ever, is far out. Within the comparable peer group, however, these guys are cheap.
This is an example of the asymmetric returns that I like. What’s the worst that can happen? You lose 100%. What’s the upside here?
Now I’m not a chartist but there looks like there could be a tide change.
On the warrant and option from there’s not too much that is below the current stock price of $0.065/share.
So, this project is cheap. Has some momentum indicators and there’s not a lot of drag on the option/warrant front.
They have ~2M in cash and spent about the same last year. Not the worst cash balance out there but not the best.
Carnac has a mixed bag of miscellaneous projects. The only one that really stands out is New Polaris. ~10 g/t, historic mine, challenging infrastructure, challenging metallurgy (probably). Does not check the box as a simple project.
Overall, I think this is pretty interesting. Will watch.