Reading NI 43-101 reports: Data verification

Typically in a NI 43-101 technical report, the author will re-assay the drill core to verify the integrity of the assay results.  This is to help spot Bre-X style frauds where somebody may be ‘salting’ a crushed sample with gold.

Here’s the crazy thing:

1. Some people still commit blatant fraud… even though they will eventually be caught.
2. Often in technical reports, there are issues with data verification and the author doesn’t care.

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“Investing” in junior mining… a recap

Here’s how I see junior mining.

The promotional game

Almost all junior mining companies are promotional to some degree.  All of the explorers have pretty much zero cash flow and are dependent on raising capital to fund their operations and the insider’s salaries.  Most juniors are usually some mixture of a pyramid scheme and a genuine business.  Here are some of the things they do:

Really understanding an industry

Looking back on my past investing, I have invested in stocks that I don’t really understand.

I went long First Solar thinking that its unique technology gave it a low-cost advantage over the everybody else.  This was true until polysilicon prices crashed and the situation reversed.  First Solar is the high cost producer that’s at a severe disadvantage in the solar industry.  The ex-CEO and the short sellers were very adept at anticipating the future and were strong sellers of the stock when First Solar was trading at several times today’s price.

Tesla (TSLA) short thesis

The short Tesla trade is extremely crowded.  60%+ of the float is sold short and the borrow was over 90% at one point.

I believe the main reason to short Tesla is because it has historically lost a huge amount of money every year.  For every dollar in revenue, it has had at least a dollar of GAAP losses.  The valuation is also ridiculous.  The market cap is roughly $3B for a company that has less than $300M in book value ($62M as of June 30 2012, which is before the latest secondary offering).

Bondholder games

From reading through various financial filings, it struck me that many large corporations don’t pay a lot of attention to their bond holdings.  They allow investment firms to buy dubious bonds on their behalf.

Google (GOOG)

In my opinion, the most important points about Google are as follows:

1. Google has an amazing franchise in its Adwords (search advertising) and Adsense (banner/text ads) businesses.  These business are likely to continue to grow earnings at very high rates for the foreseeable future.
2. At a P/E ratio of roughly 22 and with a high growth rate, Google is somewhat cheap.
3. The biggest risk to Google is that of a competitor developing a better search engine.  In the history of technology companies, small startups like Google can quickly dethrone the market leader in the span of only a few years.  Google did this to the former market leaders such as Yahoo and Altavista.  Another company may do the same to Google.  I do not see Google as having a moat against a higher quality product.  It is not like the soft drink business where Classic Coke has a moat against better tasting products such as New Coke (now defunct) and Pepsi.  The technology industry is littered with corpses.  Not even network effects protected services such as ICQ and Myspace.

I believe that Google call options are compelling since the options minimize the tail risk and they aren’t expensive.

Online advertising (GOOG, FB, etc.)

I believe that online advertising offers significant value compared to traditional advertising because online advertising can be tracked very easily.  Internet advertisers can track the click-through rate on their ads and how many of those clicks convert into a sale.  This gives instant feedback on the ad’s return on investment.  Advertisers can optimize their advertising budget to maximize their profits and split-test different ads and landing pages (the webpage that the ad points to).