first majestic silver

The Ormetal Report

March 14, 1997

Investing in Juniors -

I have always encouraged investors and speculators to investigate for themselves the different companies they were considering as potential purchases for their mining portfolio. Of course, this is more easily said than done, but I have seen many friends achieving very good results in past years. There are only a few rules to follow and eventually you can do it on your own.

Firstly, there are two sides to the equation. On one side, you must evaluate what is the current value the market is assigning to a given company. This is the easiest part. What you need to calculate is the market capitalization of the company. This can be done by multiplying the number of shares outstanding for that company by the current price of the stock. You should also include all options and warrants outstanding that allow their owners to buy new shares directly from the treasury if the purchase price is lower than the current market price. The correct figure to use on the number of shares should be obtained from the company...this is the only reliable source. You can certainly get a fair approximation from various on-line services like Canada Stockwatch if you are dealing with a Canadian company, but it is safer in calling the company directly.

The other side of the equation is much more complicated to evaluate. Here you want to know what the company is really offering you for the price you intend to pay for its shares. Look for three main items that should be included in your evaluation: management, properties and financing... in that specific order.

You guessed right if you think that evaluating management is the most complicated thing to do. Unless you are considering a company that has a proven record, you will need to knock on many doors, ask a lot of questions and probably take a few chances before you can reach the desired level of confidence. This is the part that we neglect most often. We will easily be attracted by the numbers and forget that they are put in print by interested parties. I know it, because it happened to me many times. Ask if the company has business partners. Maybe they are already well-known. And of course, inquire as to their complete professional background. Study the resume of each director. Do they have experience in mining? How long have they been with this company you are studying? Where were they before ? What are their past achievements? You don't want to buy into a company where management has no experience. Of course, one can never be sure of everything he is told. So try to verify these answers. A lot of information is more available today than was 10 years ago when the on-line investing community was very small. Numerous on-line forums and discussion groups exist where you can exchange ideas with other investors. Some trade journals are now available on-line. News services, stock exchanges and Security Exchange Commissions are all valid sources of data for your research. Of course, keep looking at the Gold-Eagle website, which is getting better everyday.

Look at the properties -

Next, look at the properties this company has. Where are they located? In which country ? Are the properties located where mines or other minable deposits have been found. Do they have reserves? What kind of exploration results have they achieved in recent months. What is their current plan regarding these properties. What metals can be found on their properties ? Is it gold or antimony? Do they have an established market or will they have to create one. Finally, what is the value of their properties..? I will have a lot to say in future issues on this all important subject.

Additionally, there are easy methods that will help you reach a quick estimation of the company's property, like applying a certain price per ounce, or ton of metal ore in the ground. But there are also tedious methods like the NPV method (net present value) that will give you obtain an exact evaluation, but will keep you busy in Excel or Lotus for several hours. Each case is different and various methods will be more applicable, depending on the specifics of the company.

Finally, consider the financial situation of the company. Is it in good shape? Does it have the necessary financing for its exploration program? Does it have the financial resources to pay for its commitments? Is it in a position to make acquisitions? In the past has it been successful in raising money? Did it ever get a loan from a bank or similar financial institutions? If it is about to do some sort of private placement, how much dilution will current shareholders face? Does it have positive cash flow? Debts?

As you can see, estimating a company's fair value is not an easy task. On many occasions you will find yourself skipping a few important steps, and on many occasions, you will end up getting into trouble. It will happen in those situations when you hear about a hot-stock that is going up everyday, and you don't have the time to investigate it - because the stock is rising. I know the feeling, because it has happened so many times to me and many of my friends. Sometimes all goes well, and we are lucky..., but other times, it is a nightmare on Howe Street.

So how do you begin your own research? -

Very simply, call the company and ask for an information package. Read it. Make sure you go through all recent press releases. Understand what the company is telling its shareholders. When you have a clear picture of the company's situation, call them back. Establish a relationship with the company. Verify their progress on a regular basis. All companies have a person that is responsible for investors' relations. The smaller they are the more available they will be to talk to you. Shareholder support is what they want.

Remember that there are two principles that can help you make money on a constant basis in the markets. Firstly, do not put all your eggs in the one basket. Next, remember there will always be other opportunities, so there is no need to rush into buying a stock.

Gold is the official state mineral of Alaska.
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