Here are the resources that I found the most helpful for understanding mining…
Things you should read first
Rick Rule “Why I am excited about this market” – This is a great article on his investment philosophy (e.g. buy the dips / sell the rallies, invest in those with superstar track records) and on the dynamics of the mining industry. One of the most important things that you need to know is that the junior explorers are huge destroyers of capital in aggregate.
Karris Kupperman “Worse than airlines” – An article explaining exactly why he doesn’t like investing in junior mining.
“Investing” in junior mining… a recap – My thoughts on investing in the sector.
Is mining worth adding to your circle of competence?
In my opinion… probably not. I have no problem with technical information (I taught myself C++ programming and image processing). But when it comes to mining, you need to know enough about a number of different fields:
- Mineral estimation.
- Mine engineering.
- Infrastructure. How much it costs to build roads, railroads, pipelines, etc.
- Politics, political risk, permitting. This is different for every country and different for regions within the a country.
- (optional) Geology.
- (optional) Mineral exploration techniques- electromagnetic, gravity, indicator elements, drilling, etc.
Getting information on these fields can be difficult as you usually need up-to-date costing information (which I don’t have access to). On the knowledge side you have to be up-to-date on the newest metallurgy techniques, types of infrastructure (e.g. concentrate pipelines), and politics.
On top of all this, you don’t have access to all the engineering data (e.g. if you want to check if the mineral estimate is reasonable). You can’t do much to protect yourself against fraud unless you have access to a company’s drillcore and their assay database. NI 43-101 technical reports basically do almost nothing to protect investors. I am at a huge disadvantage compared to senior miners who insist on having access to data and on re-assaying drill core (look at Freeport Mcmoran and how it didn’t get burned on Bre-X).
And almost all juniors out there are trying to pump their stock and will take steps to try to get investors to overpay for their stock. They will commission very aggressive technical reports, will selectively release information, and may omit important information like title issues.
On top of that, many of these companies have flawed financial structures. They are almost always undercapitalized and are forced to spend money to raise money (e.g. stock promotion, attending conferences, talking to investors, underwriting fees, glossy annual reports and websites, paying for shills, etc.). Some of them are very inefficient with their money. Little of the capital raised is actually spent on exploration.
Mining isn’t a very profitable industry, it’s rife with lies, and it’s incredibly difficult to do due diligence. The only reason why I am interested is because the sector is beat down right now… there is blood in the streets. If you still want to learn about mining, here is an overview of books that I have read…
Introduction to Mineral Exploration – University textbook that gives an overview of mineral exploration techniques. It covers resource estimation pretty well. I recommend reading this book as it helped me understand most parts of a NI 43-101 technical report. If you have time to read only one textbook, I would read this one. However, this is not an easy read as it is an engineering textbook.
Introductory Mine Engineering – University textbook on how mines are built and operated. It gives great background information on the relative costs of different mining methods and their applicability. You could probably skip the parts related to explosives as you probably don’t need to get into that level of detail for investing purposes.
SME Mine Engineering Handbook (2 volume set) – There is overlap between this and the two university textbooks above (and for this reason I did not read the entire 2 volumes). It covers a lot of topics not found in those textbooks. The chapter on tailings is good but basically the important thing that you need to know is that tailings dams can vary wildly in cost.
Wills’ Mineral Processing Technology – This is a classic textbook on metallurgy. Metallurgy is extremely important to the economics of a mine and can break some projects. The most important thing that you need to know is that sometimes mineral processing costs are uncertain as experimental plants on a small scale do not necessarily extrapolate to plants on a commercial scale. However, I’m not sure that investors need to know that much about the operational side of mineral processing. This textbook is worth skimming through just so you understand why mineral processing costs are sometimes uncertain.
SME Mining Reference Handbook – A useful reference for engineers but I’m not sure if it is that useful for investors.
Not for Gold Alone by Franc Joubin – This is the autobiography of a very good prospector (he found multiple economic deposits in his career). It’s a good autobiography, well-written, and easy to read. He does give a story on a salting fraud and one on how a friend of a friend benefited from insider trading. These kinds of things have happened in the past. I’m not sure this is that useful of a book for investing.
The Big Score: Robert Friedland, INCO, And The Voisey’s Bay Hustle – I’m not sure this is that useful of a book for investing. The book does give some insight on the context and history of junior mining. Robert Friedland is a very good salesman and sometimes he promoted projects of extremely dubious economics (e.g. underwater mining).
Facts and Fantasies About Commodity Futures (paper/article) – Two university professors do some backtesting and find that commodity futures outperform commodity equities by about 3 times.
The gold book: the complete investment guide to precious metals by Pierre Lassonde – This book gives some good background information on investing in gold and some history on gold. However, it was a little disappointing for me. Lassonde does not talk about how he made a fortune at Franco-Nevada (that is the book I want to read!). The book advocated an allocation to gold and was published in 1996… roughly 8 years after publication gold was still at the same price (see indexmundi for historical prices).
Get Smarter: Life and Business Lessons by Seymour Schulich – This is a decent book but unfortunately his book doesn’t contain that much information on Franco-Nevada.
Mining explained : a layman’s guide – This book is an easy-to-read introduction to mining. Obviously for its short length it is not very in-depth.