(Kitco News) - Junior resource stocks will lag the metal price because the past run up disappointed investors, said M. Stephen Enders, executive chair at Brooks & Nelson.
Last week Enders spoke to Kitco Mining at the 2024 Precious Metals Summit Beaver Creek in Colorado.
Enders emphasized that while technical, legal, and ESG (Environmental, Social, and Governance) due diligence are crucial, understanding the management team is even more critical.
“People on the buy side in particular need to do a better job at management due diligence,” said Enders. “This industry does a really good job of technical due diligence and legal due diligence. But our research has shown that the biggest issue that mining investments suffer from is poor management. And yet very few companies invest the amount of time required to understand the kind of team that they're going to be investing in.”
Enders also discussed systemic issues contributing to poor management in the mining sector. He noted that too many junior companies spread human talent too thinly.
“My personal take is that there are too many companies,” said Enders. “And there's a dilution of the talent that's out there. In any organization, you're going to have top people, whether it's top students in a class or the top employees in a company. But there’s a small subset overall. When talent's diluted across the whole industry…we see a talent shortage and a performance problem.”
Enders said metal prices are good, but a lot of investors soured on resource stocks the last time, so will be reluctant to enter the sector again.
“I think that not all junior stocks are the same and not all projects are the same,” said Enders. “The projects that are of value and have potential will eventually get funding, and the share prices of those companies will eventually rise, but there's a lag. And there's a lag because of the lack of performance of the junior sector in the last super cycle, where it was over promised, under delivered, and it took a lot of people out of the investment.”
Coverage of the 2024 Precious Metals Summit Beaver Creek in Colorado is sponsored by Newcore Gold.
0:00 - What are some of the errors investors make assessing resource companies?
1:12 - Why are resource companies afflicted with poor management?
2:00 - Red flags at resource companies
3:00 - Management with skin in the game
4:10 - Are juniors on the verge of a breakout?
5:02 - Attracting investment
6:21 - M&A and resource sector
7:30 - How does the resource sector start shaking out under-performers?
8:51- Margin expansion at the gold miners
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