You have to kiss a lot of frogs...

A very good friend of mine is what you might politely describe as a ‘rainbow chaser’. It’s because I like him a lot that I have told him this frequently over the years, but he persists, pursuing crazy ideas, constantly in search of a jackpot payout.

Over the years, he has regaled me with ideas for making that elusive million (or even millions) in one fell swoop. He has faxed me business plans from Russia, details of deals in the Congo and once called from the States asking if my phone was bugged as he reckoned his latest wheeze had brought him into contact with the Mafia. This may sound as though I’m making liberal use of some form of artistic licence, but believe me, it’s all true.

Up until about ten years ago, I was happy to get involved whenever I could because occasionally, the bright ideas worked – not as though we ever struck a prolonged seam of gold. Nevertheless, I’ve sourced fire tenders for Saudi Arabia, acquired Belgian helicopters for use in the Gulf and bought land in Portugal later earmarked to become a safari park.

But these represent the good deals, the ones which the law of averages insisted would come off, not the basis for an established career.

Attractive as swanning around the globe in search of fresh opportunities might sound, unless it’s at somebody else’s expense, most of us need to focus on what we know, what we might even be good at, if we’re to earn a living.

I mention this because I continue to be swamped with information regarding natural resources, in particular Aim-listed companies with mining interests around the world, some in places of which you may have even heard.

There are more than 100 mining outfits listed on the junior market which account for approximately 16% of its aggregate value. Moreover, with another batch of mining and metals companies planning to seek an admission to Aim, I wonder whether the sector is experiencing its own variation of the tech stock boom?

Most people are aware that the Chinese and Indian economies continue to grow at a staggeringly rapid rate. The corollary of this is increased demand for all sorts of products, particularly metals, which has driven the price of copper and zinc. There are, however, signs of a slowdown in demand.

I’ve tended to steer clear of piling into mining companies for several reasons: first, I know nothing about the mining sector except that it comes with significant exploration and development risks as standard.

Second, political risks in some locations can be even more significant; unless the appropriate officials are bribed, nothing gets done and the value of your investment falls.

Third, much of the sector’s analysis and research is littered with phrases such as “there is talk of potentially huge reserves” or “there is speculation that the mine will produce x zillion tonnes of nickel” and so on. Such phraseology smacks of similarly rushed ‘analysis’ so prevalent when tech stocks were an investor ‘must have’ not that long ago.

I’ve no objection to the odd speculative investment, albeit modest, but to me, the mining sector looks like the ideal place for my pal. Why? Well, his stock phrase, one which represents his life’s very ethos, is “You’ve got to kiss a lot of frogs before you kiss the prince.” It appears tailor-made for the less transparent areas of the mining sector too.

posted on 18 October 2012 19:07 byPJS

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