Investment Strategy

A successful mine goes through a number of development phases. The cycle starts with a “discovery hole”, the drill hole that shows proof of a significant discovery. It normally takes at least five to ten years to get to a producing mine from this stage. A large part of the value is created at the initial discovery stage.

In the figure below we can see the value creation at various stages of the development cycle. For value investors such as ourselves, we are particularly interested in the discovery and in the production phases. We see sharply rising valuations during both of these periods, and it is here that our investment focus lies. In between these two phases lies a period where feasibility studies that determine the economic value of a project are conducted. Companies in this phase are often target for a take-over bid, which is the reason we still hold these in our portfolio.

Time is depicted on the horizontal axis, and the value creation of the company is shown on the vertical axis. Every circle on the figure depicts one of our portfolio positions. The largest circles indicate investments larger than one million Euros.

We identify four major phases in the development of a mining company:;

I Pre-discovery (Exploration company has not yet drilled)
II Discovery-phase (Drilling results show proof of a significant discovery)
III Mine Development (Feasibility of a project is investigated)
IV Production ramp-up (Production start-up creates further value for the company)