Decline of the TSX Venture Exchange - discussion morphs into a review of the periodic table of investment returns

The following graphics were compiled by The Visual Capitalist. It's one of my favourite sites. 

Visual Capitalist TSC Venture Exchange from 1990 to Present

The massive decline in resource-based stocks, the life blood of the exchange, has disenchanted investors and other players.  This is typical:
http://business.financialpost.com/news/energy/revitalizing-the-tsx-venture-has-high-priority-in-2016-for-broken-exchange?__lsa=53fe-91ae

A Falling Tide Lowers All Boats ... the captains are hapless victims

Over the past 3 years, many resource-based funds, especially those focused on precious metals and oil and gas, have recorded tremendous losses.  Out of curiosity, I checked the credentials and performance records of the account managers who helm many of these funds.  Here are a few findings:

• all of them were well educated with backgrounds in the areas of business, economics and engineering
• all had the requisite professional certifications 
• most had been in the business for more than a decade and most had recorded impressive portfolio performances during the height of the resources bubble

This notwithstanding, their performances in recent years have been dismal in real terms - the result of constraints imposed by the investment parameters of their funds.  It's almost as if they are locked on auto pilot, unable to change course in the face of the shoals ahead.  In other words, they have little option but to soldier on, go to cash, or close their funds.  

Fund managers have little choice but to be optimistic as it is not in their career interest to discourage bruised investors: 

The energy sector has been a challenging place for investors for several years now and many investors’ patience levels are being tested (to the extreme!). This has been the worst oil price correction in nearly 45 years and the pain inflicted has been significant. The greatest risk today is not in being invested in energy stocks but rather in buying into the fear of today, every time an economist tries to steal headlines with the lowest possible short-term prediction for the oil price (we are almost at the point where the next prediction will be for a negative oil price). ... The only thing missing now is a bit more patience and a few more months to get through the worst period of refining activity and the resumption of Iranian production. After that, investors should focus on inventory withdrawals and the rebalancing of the market. It is at that point when the price of oil should begin its recovery and oil stocks along with it. 

http://sprott.com/media/318873/sprott-energy-fund-monthly-commentary.pdf

Periodic Table of Investment Returns

The following table chronicles the rise and fall of investment tides in various sectors.

Periodic Table of Sector Returns 2006 to 2015

The periodic table has been used by many to extoll the virtues of diversification.

I take a different view.

• Diversification for its own sake is fine if your goal is to achieve returns which approximate general market indices, in which case, your best option is to purchase various market index ETFs.  
• There are some long-term trends which, in my opinion, favour certain sectors over others in terms of providing opportunities for financial gain.  For example, an aging population in wealthy countries will only increase the demand for products and services in health care.  Growing affluence and rapidly expanding populations in many parts of the world, coupled with the disruptions of climate change, have created ideal conditions for long-term investments in agriculture. Infrastructure is another theme: renewal and new build.  
• Most important, the foundation of my portfolios is comprised of companies with excellent management, stellar balance sheets and competitive business models.  Diversification for its own sake is a non-starter.  

The following paper provides a concise and thoughtful overview of a sector-based approach to portfolio construction.

Equity Sectors: Essential Building Blocks for Portfolio Construction

The takeaways:

• Applying a sector-based framework to equity portfolio construction can help investors achieve a variety of alpha-seeking investment objectives and greater control in managing portfolio risk.
• Beyond company-specific factors, sector exposure has been the most influential driver of equity market returns, yet sector-based portfolio construction remains an under-utilized strategy in the marketplace.
• Equity sectors have a variety of attributes, including stable classification, consistent earnings drivers, high return differentiation, clear volatility patterns, and low correlations, which together can help investors generate efficient portfolios
• Sectors can be used as portfolio construction building blocks through a variety of investment strategies, including sector allocation, portfolio overlays, portfolio completion, and risk management, as well as to diversify wealth beyond human capital exposures.

When starting out in investing, I got caught up in the intricacies of trying to navigate my way through various investment strategies.  It was unproductive.  After several years, I concluded that most of the strategies were developed primarily by academics as opposed to people who put their own money on the line.  I also learned that modelling supported by back-testing tended to produce investment strategies which generated an attitude of over-confidence on the part of their practitioners .... sometimes with disastrous results when the realties of life trumped theoretical models.  A classic example is Long-Term Capital Management.

I have watched the rise and demise of many investment strategies and concluded that the following approach suits my temperament:

• emphasis on sectors with the potential to generate substantial gains over the long-term
• periodic speculative investments in small companies with products/services with the potential for significant gains
• and always, a focus on companies with excellent management, great balance sheets and a competitive position 

It is very much an "active" approach - one which demands constant learning and forays into unfamiliar ground, especially when investing in small innovative companies.  It also entails a mindset able to sustain heart-stopping losses when the market sentiment of the moment is negative e.g. fear has driven down prices in sectors such as agriculture, seemingly ignoring some very compelling long-term considerations which favour future prospects for financial gain.  

This approach is not suitable for everyone, nor should it be.  As my father-in-law used to say, "That's why they make Fords and Chevs."

Oil and the Middle East

Much has been written about Saudi Arabia's efforts to capture a larger share of the global oil market.  The common view is captured in the following sentences:

Why did the country opt not to cut production? Saudi Arabia is one of the main players in the oil market, supplying 12-13 percent of the total daily oil output worldwide. As the second biggest oil producer after the US, it wants to preserve its share in the market and a cut in production would threaten this share, which takes a long time to regain.
http://www.investopedia.com/articles/investing/031715/how-saudi-arabia-benefits-low-oil-prices.asp

However, things are not that simple, even if the above-noted thesis is taken at face value.  Things change.

Saudi Arabia's reputation in global affairs, while never stellar, has suffered recently and attitudes between it and many countries have changed:

• technological advances in oil and gas exploration and extraction have reduced the commanding position once occupied by Saudi Arabia in the global supply of oil and gas - other areas have increased production and other non-fossil energy sources are becoming more viable
• concurrent with a reduced reliance on Saudi oil is a developing global impatience with Saudi Arabia's export of Wahhabism and the disruption it has caused within and outside the Islamic world - the country is becoming more isolated diplomatically
• the negotiation of the Joint Comprehensive Plan of Action to (JCPOA) concerning Iran's nuclear program has had two major consequences for Saudi Arabia: the release of Iran's frozen financial assets and more importantly, increased access to foreign markets for its oil.  The agreement was negotiated in the face of strenuous opposition from Saudi Arabia

At the same time, Saudi Arabia must contend with a very young, underemployed and potentially volatile population.  At present, social peace has been purchased in the form of all manner of subsidies for housing, fuel and social support programs.  The social fabric is under strain and could rupture suddenly. This is complicated further by intense jockeying for power amongst the ruling class, an outcome which could result in further uncertainty. 

While oil markets are depressed, the potential for conflict in the Middle East between Saudi Arabia and Iran is greater than in years previous.  

Here is a very interesting take on the relationship between Saudi Arabia and Iran, one of the best I have read in years.  As always, it is worth noting the credentials of the author.  

Sinking oil prices (crude dipped below $32 this week) further diminish the costs for risky behavior and mute international repercussions. Iran, for one, would be relieved to see Gulf tensions raise oil prices as it tries to reenter the global energy market.
Saudi leaders are determined to forge political order within and outside its borders. Its actions and rhetoric this week show that they cannot do so without resorting to sectarianism and bellicosity. As Saudi Arabia’s marginal returns of confrontational policy diminish due to unfavorable circumstances in the Middle East and inside the Kingdom, it must increasingly ratchet up the stakes to retain the same level of return and benefit. However, violent sectarianism is not a manageable policy, and can empower forces—such as ISIS—that will be further detrimental to regional order and to the stability of Saudi Arabia itself.
A New Era of Brinkmanship in the Middle East

Most important, I believe that the ruling class in Saudi Arabia is isolated from the realities of life in the kingdom.  It has the luxury of unprecedented wealth and is not accountable to anyone except a limited constituency (the clergy, military).  This isolation, whether intentional or an unintended by-product, has the potential to re-enforce prevailing attitudes and adherence to established ways of conducting the business of government.  There are few avenues for gradual change (e.g. meaningful elections, more equitable ways for citizens to participate in the economy).  As a result, change often takes the form of revolts ... small surprises have the potential to ignite major shifts as per the Arab Spring ... the clock is ticking.

I have compiled a list of oil and gas companies which could increase production quickly in the event of a disruption (or the hint of a disruption) in the flow of oil from the Gulf.

Some characteristics:

• cash on hand and access to sources of additional money
• operations in stable countries served by the rule of law and a robust infrastructure to support the industry
• production which could be brought on stream very quickly at low risk
• a record of low costs achieved through efficiencies which will add to profitability
• ownership of processing facilities and ready access to pipelines and/or rail transportation
• excellent management

Contingency planning perhaps, but for all of his faults, Baden Powell had it right:

Ligand Pharmaceuticals (LGND) - To Anchor or Not to Anchor

I have yet to make a decision on this stock. Why?

• the company's presentation is compelling
• its business model has potential
• management has rewarded itself at the expense of share owners
• its primary revenue streams are not ironclad 
• I suspect that its stock price has risen on a tide of optimism in the biotech/pharma sector

My voyage started with a survey of pharmaceutical companies. The search broadened as a result of insights gained from two references which are cited below under Overview.

Some key points emerged during the initial phase of my reading:

• the sense that information management (Health Care Big Data) will be one of the dominant drivers shaping the future of health care delivery e.g. the development of drugs, delivery of health care, evaluation and pricing of services 
• the forces of transformation will eventually force the conservative culture of the medical community and pharma industry to change
• dominant players (payers, information managers etc.) have shown an ability to adapt; they appear to have an advantage as a result of their size and access to data; and, they are adopting a variety of different strategies which provide informed investors with considerable scope to make judgements on the relative effectiveness of company strategies
• markets for goods and services differ considerably across the world depending on patterns of disease, population genetics, ability to pay, population structure, culture, and so on
• there is a role for specialized niche players

The Pharmaceutical Industry - Overview

Here are a few useful references which I would urge everyone to read:

Pharma and Biotech Industry Outlook
I came across this while searching on Google images.  I clicked on a graph in images and found a very interesting web site named Slide Share.  Founded in 2006 with the goal of making knowledge sharing easy, Slideshare joined the LinkedIn family in 2012 and has since grown into a top destination for professional content. With over 18 million uploads in 40 content categories, it is today one of the top 100 most-visited websites in the world.
I have subscribed to the site - some great reading.

The above-noted reference provides an overview of the industry: the players, trends, implications for the future.

From Vision to Decision - Pharma 2020
A comprehensive overview including tailwinds and headwinds - check out the meaning of "HONDAs" -  individuals who account for 70 percent of healthcare costs.  Don't be one of them.

The document provides a useful synopsis of the decision-making processes of pharma companies - something which is vital if you are planning to analyze the prospects of a potential investment.  I was especially interested in the range of strategies for drug development.  Fascinating.

The above-noted papers are two in a series of five: http://www.pwc.com/gx/en/industries/pharmaceuticals-life-sciences/pharma-2020/business-models.html

Can Big Data Fix Health Care?
This is a well written article, replete with a variety of embedded references of high quality.  It makes a compelling case for the likelihood that big data will be the vehicle to transform our health care systems.  For one thing, the current models will be unaffordable in much of the western world due to an aging demographic and competing demands for government funding. Doctors and other conservative elements will be forced to change when confronted with the realities of evidence-based policies on the part of those who fund the medical system.  There will be considerable friction in the competition for control, but it need not be a win/lose situation for participants.  This reading has fundamentally changed the way I look at the health care system.

The Drug Discovery and Development Cycle

There are two basic aspects to bringing a new drug to the market: discovery and, development.

A.   Discovery

A description of the discovery cycle is presented here:
https://en.wikipedia.org/wiki/Drug_development

The advance of genomics and greatly enhanced capabilities of managing "big data" has revolutionized the cycle - increased its speed, increased the potential to "target" drugs more effectively in consideration of genetic variation in recipient populations, and in refining the composition of candidate drugs.

B.  Development

This part of the cycle is lengthy and entails tremendous expenditures and risks on the part of drug companies - in excess of $1 billion per drug if everything goes "right" and there are no bumps along the road.  There are many potential points of failure on the way to the market place, including: toxicity, failure to deliver anticipated results, unwillingness of government to pay, and a reduction in anticipated revenues through government demands for cost effectiveness studies, etc.  Even after drugs have reached the market, companies always have to consider the prospect of competition from cheaper, more effective remedies.

In 2014, an article was published in Nature analyzing the clinical development success rates for investigational drugs. It's no surprise that the success rates are still somewhat dismal with 1 in 10 drugs that enter clinical phases pushing through to FDA approval. The article breaks down the success rate in each phase for differing classes of drugs as well as various therapeutic indications. NMEs were found to have the lowest success rates in every phase of development (7.5%) whereas biologics had nearly two times the success rate (14.6%).
http://www.mdbiosciences.com/blog/drug-discovery-success-rates-the-role-of-preclinical-study-design

I will not pursue this in more detail in this posting.  However, there are some useful waypoints for investors:

• the days of "blockbuster" drugs appear to be waning - some tremendous profits are being made with drugs such as Crestor but many cash cow blockbuster drugs are coming off patent, meaning that cheaper generic drugs will erode profits of the original developers
• large pharma companies are adopting a variety of different corporate strategies for discovery and development (see first two references for more detail) without any guarantee that they will be successful as in the days of olde
• there is a trend for custom drugs targeted to specific (sometimes rare) diseases and the genetic make-up of individuals and populations but with lower returns to a company's bottom line
• the role of information is increasing in importance both in formulating compounds and in testing them more effectively
• government is more amenable to changing the approval process to both shorten and make approvals more effective, including monitoring drugs once they have entered the market
• collaboration between countries in the approval and monitoring process appears to be increasing
• some drugs claim to double life expectancies but in the case of terminal diseases how can the public be expected to pay tremendous sums when lives are extended only by 18 months or so at a cost in excess of $50K  per individual (not including associated medical costs)?  I suspect that medical funding could be allocated for more robust returns.  It will be very interesting to follow Canada's policy for assisted death as it appears to be signalling a sea change in public attitude.   

The larger multinational pharmaceutical companies have operations which encompass discovery and development.  They are complex, difficult to understand,  and  companies are challenged with the need to adapt to rapid advances in technology (including information management), the changing nature of the health delivery system, and cash-strapped governments which are insisting on a greater measure of "value".

In light of this, I decided to focus on smaller entities specializing in drug discovery where investments are comparably smaller than in drug development.  In essence, beasts of this nature are more "knowable".

When investigating companies in the discovery niche, I looked for beasts with the following characteristics:

• excellent management with a long history of working in the area of discovery
• technical excellence and services/products with a competitive advantage
• the ability to partner effectively with larger entities
• a business model which reduces risk by concentrating on the company's expertise
• the potential for significant gains as a result of contractual arrangements with clients

Ligand Pharmaceuticals (LGND)

As a result of reading the aforementioned sources and leads which emerged in the course of that reading, I started to focus my attention on a few companies.  I narrowed my search to LGND, a niche player which is involved in early stage drug development.

Why?

• Its business is focussed and comprehensible.  
• Its business model appears to be a good fit with the modern pharma business. 
• It has demonstrated an ability to change its business model to exploit opportunities
• A few larger participants in the systems require a "jump of faith" for investors as the businesses are complex, prone to major disruption as a result of government intervention, potential legal difficulties, and competition.  

The share price has increased by more than 1000 percent in the last five years.  Normally one would be cautious in making an investment on the basis of this performance as most companies are unable to create value of this nature over a prolonged period.

However, as I started to investigate the company in more detail, my research started to focus on a few aspects related to the nature of the pharmaceutical industry (competition, government regulation and approval process, future demand) and the strategic position of Ligand Pharmaceuticals.  Once this was done, I concluded my research with an investigation of a few areas specific to LGND: management, balance sheet, income streams etc.

Here is a very informative 127 page investor presentation.
http://content.equisolve.net/_d41d8cd98f00b204e9800998ecf8427e/ligand/db/184/592/pdf/Analyst+Day+Nov_18_2015v+Full+FINAL.pdf

Read it diligently and you will develop a good understanding of the company's strategic positioning, its business model and its operations.

Ligand is a turnaround story: activist investor seeks to extract value - turnaround expert stays around ...
life-after-loeb-ligand-pharmaceuticals-prospers-in-stripped-down-mode/

john-higgins-of-ligand-pharmaceuticals-on-restructuring-a-business-and-streamlining-operations-how-to-refocus-your-business-by-setting-priorities/?all=1

I was almost ready to purchase shares, but as always, I dream about a potential investment for a few nights (creative dreaming).  I wondered about the company's profitability over the long term. Sometimes, you can cut too much by way of monetizing assets. I've learned that many of most profitable advances come about as a result of chance conversations and curiosity.  Some companies are more able than others to create this environment.  It is not something that can be measured on a balance sheet.  I don't know if LGND has the critical mass of people to do this, especially when main office is concerned primarily with managing relationships. Also, it's a real management challenge to cultivate this climate when participants in an enterprise are separated by distance and organizational units.  This is the "softer side" of evaluation.  I've seen several companies which have this "magic jelly" and I'm not convinced that I see it with Ligand.  I may be wrong and will leave it to readers to arrive at their own conclusions.

In the light of day, I started looking for potential shoals:

• LGND's stock compensation is very high.  In fact, in the 3rd quarter of 2015, stock-based compensation compared to revenue was the third highest in S&P 1500 listed companies - 25 percent of quarterly revenue. http://www.marketwatch.com/story/twitter-shows-how-companies-enrich-executives-at-your-expense-2015-02-06
• A short seller, Lemelson Capital, has taken a decidedly negative attitude to LGND.  Over the next week or two, I will take a critical look at its argument.  In its "rock flipping" it uncovered some minor irritants; however, a few of them warrant further investigation. http://www.amvona.com/featured/finding-alpha/item/36339-ligand-pharmaceuticals-severe-competitive-threat-to-key-royalty-program-and-“going-concern”-risk-drive-100-percent-downside#comments

Sometimes, when entering a particularly challenging anchorage which is new to me, I will drop the hook on the approach and then take to the dinghy to explore the situation in more depth (pardon the pun).  Only when I am satisfied that there is a good margin for safety will I make a decision to proceed.  I follow much the same procedure for investing.

Financial Passage Maker - Performance January 2016

Entity	Initial Price/ Purchase * Date	Price * Dec 29/15	Gain/Loss since Jan 1/15 %	Gain/Loss Since Purchase %
Silver Wheaton (SLW)	12.37 2007-09-04	17.07	-26.8	38
Polaris Materials Corporation (PLS)	10.70 ** 2007-06-01	1.57	-9.7	-85.3
Cenovus (CVE)	32.39 2010-07-27	17.41	-24.9	-46.2
North West Company (NWF)	16.23 2009-05-07	28.86	15	77.8
Deere & Company (DE)	88.07 2013-01-03	77.5	-9.8	-12
Rocky Mountain Dealerships (RME)	11.89 2013-01-03	6.16	-29.7	-48.2
HollyFrontier (HFC)	47.95 2013-01-28	39.81	9.8	-16.9
Oak Tree Capital Group (OAK)	56.45 2013-10-28	48.19	-4.9	-14.6
Fairfax Financial Holdings (FFH)	477.98 2014-3-25	661.97	11	38.5
Clean Seed Capital (CSX)	.51 2015-01-07	0.65		27.5
Abitibi Royalties (RZZ)	2.57 2015-11-20	3.49		34.9
Input Capital (INP)	1.86 2015-11-20	1.76		-5.4
Marquee Energy (MQL)	.49 2015-11-23	0.41		-17.3
Fairfax India Holdings Corp (FFI)	10.42 2015-12-16	10.05		-2.3
CRH Medical Corp (CRH)	4.43 2105-12-29	4.29		-3.2

*    Prices are quoted in the currency of the exchanges where equities are listed.  As a result the gain/loss is not an accurate measure of the performance of the portfolio as the   $US has risen significantly against the $=Cdn since many US positions were established.  
** does not reflect impact of a large follow-on investment @ $.67 per share

Selected Commentary

Agriculture

The following quote says it all:

There is no point in mincing words: a recession in the farm belt is not "coming," "threatening" or even "likely:" it has definitely arrived. The only uncertainties about it are how deep it will be, how long it will last and how extensive the damage to the nation's agricultural base will be. It will not be the same as the late 1970's to early 1980's recession ─ it is not largely due to insupportable debt burdens. Rather, it is a consequence of excessive production meeting a barrier to the exports that would normally provide an escape valve for inventories.
http://seekingalpha.com/article/3750616-u-s-agriculture-in-recession-risking-depression

I was impressed by John Abbink's writing, so I looked for more and found this take on Deere (DE).  It makes a lot of sense to me.  I am maintaining my position: it is a good company; the dividends will still roll in; there is a likelihood that the company will use a decline in share prices for a share buy-back; and most important, the company is well managed and has been through bad times before. Besides, my time horizon on this holding is ten years and more.
http://seekingalpha.com/article/3717386-fiscal-2016-outlook-for-deere-and-co

It should be noted that all of the agricultural holdings in the portfolio have seasoned management who have been through low periods in the agricultural cycle.  The companies will survive through the “boom” and “bust” environment which characterizes this economic sector.  If anything, low prices represent a buying opportunity, something I have exercised with Rocky Mountain.  I doubled the number of shares in my holding.  The metrics look good and the dividend is healthy and not threatened.

I consider that Input Capital will the one holding to be less affected by low prices by virtue of its business model; however, the loss of three contracts has temporarily (in my opinion) depressed the price of its stock.  It is well worth taking this news in perspective:
http://s1.q4cdn.com/784243260/files/doc_news/Input-Capital-Corp-provides-update-on-streaming-contracts.pdf


The Oil Patch

I have compiled a short list of potential acquisitions and put them on a watch list.  The current situation of low prices will not last forever.  I've placed a special emphasis on selecting companies with with good balance sheets and the ability to ramp up production quickly.  Most important, I look for excellent management with a history of operating efficiently for several years on company holdings.  Lean times have left the survivors with the ability to earn outsized profits when oil prices recover ... and they will ... it's not different this time.  The watch list will be presented in a future edition of The Financial Passage Maker.

Precious Metals

Silver Wheaton was one of the first metals streaming companies.  I invested heavily in the company a few months after its entry into the market.  It was a spectacular investment for two reasons: its new business model gave it a jump on other financing models for mine development with the result that it secured some tremendous deals (mines had access to capital when it was most needed in return for selling a share in future production); and, gold and silver prices rocketed upward thereby enhancing the value of SLW's metal streaming agreements.  It was only a matter of time before competitors with similar business models arrived on the scene e.g. Franco-Nevada.  The following article provides a nice synopsis of Silver Wheaton's approach.
http://www.forbes.com/sites/greatspeculations/2014/10/01/a-look-at-silver-wheatons-streaming-agreement-for-the-constancia-mine/
Make sure to click on this URL which is embedded in the above-cited article.
https://www.trefis.com/stock/SLW/model/trefis?easyAccessToken=PROVIDER_7dd7a29579af2a79a590e35d77c19c0123af74c3

In today's environment of depressed metals prices, miners are looking for financing.  Some (which I tend to avoid) will issue additional shares thereby diluting the pokes of existing share owners ... Polaris Materials, come on down.  Others will negotiate traditional metals streaming agreements with the knowledge that there is some room to negotiate given that there are more competitors on the scene.

This said, I have noted a few trends in recent years.  One is that the terms of some streaming agreements allow mining companies to buy their way out of metals streaming contracts. Pretivm Resources, a company on my watch list, is a beast of this species. Second, private equity is stepping up to the plate more often. Generally speaking, investors of this ilk have the “long view” and are prepared to wait longer to learn the fate of their investments than publicly listed companies.

Streaming is starting to be the stuff of the financial press.  See the following example.
http://business.financialpost.com/news/mining/the-dark-side-of-metal-streaming-deals-strapped-mining-companies-trade-future-value-for-cash

I don't think that I will add to my positions in Silver Wheaton and Franco-Nevada.  If/when metals prices increase, the share prices will increase nicely.  However, there are some issues:

• increased competition from other lenders
• the shadow of a very large tax bill for SLW if the CRA is successful in pushing its case forward (likely as not, a deal will be cut to reduce the $US 567 million subject to taxation for the years 2005 to 2010)

Due to the cost of negotiating streaming deals, Silver Wheaton is largely confined to major deals with long-life mines.  Most often, these take the form of taking precious metal streams which are ancilliary to the main focus of large base metals mines ... but not always.  I believe that the mid-tier mines will increasingly resort to private equity deals with more flexibility e.g. the possibility of shorter streaming agreements with buy-back provisions.  While investigating mine financing, I became very interested in the other end of the scale – what I term the “micro financing sector”.

Abitibi Royalties is focussed on this sector and has done very well in recent weeks.  I wrote about it in a previous edition of The Financial Passage Maker.   The company is nimble and positioned to respond quickly to requests for small amounts of cash to maintain mining claims fees in return for net smelter royalties in the event that the claim is mined.  The company's strategy is based on the expectation/hope that it will get lucky with financing a successful claim.  In making its bets, however, the company is very mindful of the adage “the best place to find a mine is in the shadow of an old mine.”  Check this:
http://abitibiroyalties.com/theroyaltysearch/

Here is a recent interview with Ian Ball.  Note the following:

• the fact that Ball is purchasing shares in his company in the open market
• the possibility that companies might pool resources to buy mining royalties (generally mining companies stick to their own knitting – this may mark a significant development in the business)

http://www.bnn.ca/Video/player.aspx?vid=776614

My Investing Strategy for Precious Metals ... at the current time

My investing strategy entails:

• maintaining holdings in metals streaming companies (Silver Wheaton, Franco-Nevada) with an intermediate to long-term view in mind i.e. the expectation that prices will eventually increase; and,
• engaging in short-term speculation in gold and silver mining companies (see previous edition for selection criteria) and taking profits once gains exceed 20 percent or so (depends on my gut feel).  I've learned not to get greedy as the price of gold has been somewhat “choppy” in recent years, thus offering the potential for small, short-term gains (or losses).  And as always, I look for a catalyst with the potential to excite investor interest e.g. the beginning of full-scale operations at Asanko or significant new discoveries at Pretivm.  

It's amazing how the results of “base hits” add up over time. And I yet have the potential for some home runs if I get lucky.  And no, I am definitely not a “gold bug” - simply a person who has profited very nicely in the past and who sees a heightened potential for the cycle to repeat itself.

Investors would be well advised to look at the career of Rob McEwen.
http://www.theglobeandmail.com/report-on-business/careers/careers-leadership/rob-mcewen-mining-magnate-with-a-vision/article546293/?page=all

Investors appreciate his ability to promote his projects, manage cash wisely, and operate in the interest of share owners.  In mining ventures, it's all about management: 1st, 2nd and 3rd ... the mineral resource comes 4th.  I've learned to be assiduous in checking the pedigrees of mine management and boards of directors as a result.

Check my findings respecting the management of Arotech, a company which is in the cross-hairs of an activist investor who is seeking to shake things up in an effort to realize the true value of the enterprise.  (Write-up is presented the posting, Arotech - Some Thoughts to Consider When Making an Investment. )

Resource Stocks – When to Invest -  Some Interesting Links

http://www.mineweb.com/news/mining-finance-and-investment/mining-stocks-are-becoming-irrelevant/?v=3e8d115eb4b3

http://www.telegraph.co.uk/finance/markets/ftse100/12039422/Miners-in-meltdown-Mining-stocks-plunge-to-11-year-lows.html?

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http://www.telegraph.co.uk/finance/economics/12040314/Fear-grips-market-as-oil-leads-commodity-crash.html?

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