Jacques Bonneau: How I Pick Junior Miners, Plus 7 Stocks I Like Now

Key Concepts

• Cyclicality: The junior mining sector operates in cycles of boom and bust, requiring investors to buy low and sell high.
• Golden Rules: Core principles for successful investment in junior mining, including understanding cyclicality, focusing on exploration & development-stage companies, recognizing mini-bubbles, and the 80/20 rule.
• Mini-Bubbles: Short-lived periods of rapid stock price increases following discoveries, typically lasting 4-18 months.
• 80/20 Rule: 80% of profits come from 20% of investments, emphasizing the need for diversification and accepting that not every investment will be a winner.
• Trader Mentality: The importance of acting like a trader – knowing when to sell – rather than a long-term investor like Warren Buffett.
• Personal (Management): The critical importance of evaluating the quality and experience of a company’s management team.
• Flavor of the Month: Identifying metals experiencing increased demand and price appreciation (e.g., uranium, lithium).
• Red Flags: Identifying potentially problematic indicators in company press releases and reports that require further investigation.
• Jurisdictional Risk: Assessing the political and economic stability of the countries where mining projects are located.

The Art of Investing in Junior Mining: A Detailed Summary

Introduction & Background

Jacques Beno, a geologist with 45 years of experience in the mining industry, discusses his book, The Art of Investing in Junior Mining. He transitioned from field work and executive roles in exploration companies to investing in the junior mining sector after retiring in 2004, recognizing a favorable market opportunity. His motivation for writing the book was to attract new investors and provide them with a framework for evaluating companies and understanding the “golden rules” of successful investment. He notes the book has already sold out of its initial print run.

The Golden Rules of Junior Mining Investment

Beno outlines five core “golden rules” for investing in the junior mining sector:

1. Cyclicality: The market is inherently cyclical, mirroring the fluctuations of commodity prices. Investors must capitalize on these cycles by buying when prices are low and selling when they are high. He references a graph in his book illustrating the cyclical nature of the Vancouver Stock Exchange over the past 50 years, noting even major companies like Teck Resources exhibit this pattern.
2. Exploration vs. Development: The highest potential rewards, but also the highest risk, lie in investing in exploration-stage companies. Investing in companies nearing mine construction offers lower risk but also lower potential returns.
3. Rarity of Discovery: True discoveries are infrequent. Success relies on identifying companies positioned to benefit from the inevitable “mini-bubbles” that follow discoveries.
4. Mini-Bubbles: These are short-term surges in stock price following a discovery, typically lasting between four and eighteen months. Beno identifies 40 different potential catalysts for these bubbles.
5. The 80/20 Rule: A crucial principle stating that 80% of an investor’s profits will come from 20% of their investments. This underscores the importance of diversification and accepting that not all investments will be successful.

Acting Like a Trader & Emotional Discipline

Beno emphasizes the need to adopt a “trader mentality” rather than a long-term “buy and hold” approach, contrasting it with the strategy of investors like Warren Buffett. He highlights the importance of knowing when to sell, a skill developed through 25 lessons derived from the five golden rules. Investing in the junior sector is described as an “emotion game,” a valuable opportunity for self-discovery, requiring investors to understand their own risk tolerance and avoid impulsive decisions (e.g., selling after a 10% drop if driven by speculation rather than investment strategy).

Identifying Opportunities: Cycles, Metals & Management

Beno identifies three key factors for maximizing profits:

1. Correct Cycle: Recognizing whether the market is in a bullish or bearish cycle. He believes the current market is bullish.
2. “Flavor of the Month” Metals: Identifying metals experiencing increased demand and price appreciation (e.g., uranium, lithium).
3. Strong Management (“Personal”): Evaluating the quality and experience of a company’s management team, particularly the President and VP of Exploration. He stresses that a capable management team is paramount to success.

He attributes the current bullish trend in commodities, particularly gold and silver, to the promotional influence of Donald Trump, citing his policies and rhetoric as driving forces behind increased commodity prices. He notes that historically, gold price cycles have seen increases of 600% (2002-2011), while the current increase is only 400%, suggesting further potential upside.

Identifying Mini-Bubbles & Technical Analysis

Beno suggests looking for “golden crosses” in technical analysis – specifically, the 50-day moving average crossing above the 200-day moving average – as an indicator of potential price increases, as seen with lithium stocks four months prior to the interview. He emphasizes that capitalizing on these trends doesn’t require extensive company analysis, but rather recognizing and acting on the prevailing market momentum.

Company Valuation & Red Flags

While Beno’s book details a comprehensive valuation system, he stresses its simplicity: comparing a company’s share price and number of shares outstanding to similar companies. He also emphasizes the importance of identifying “red flags.” He cautions against relying solely on impressive drill results (e.g., 20 grams/tonne over 20 meters) without considering the broader context of the drilling program. Specifically, he warns against press releases highlighting a single high-grade intersection while concealing a lack of success in other holes, or results where gold is concentrated in a single meter of core. Red flags should prompt further investigation, not necessarily immediate selling.

Company Recommendations & Jurisdictional Risk

Beno provides a list of companies he currently favors (as of the interview date):

• Gold: GTC (in Nevada), Teases Gold (BC), Liberty Gold (US),
• Copper: Copper Giant (Colombia), Pico (Peru)
• Other: Precipitate (Dominican Republic), Firefly (Newfoundland)

He discusses jurisdictional risk, favoring Canada, South America, and specifically highlighting potential in Ivory Coast despite acknowledging the inherent risks of investing in Africa. He advises avoiding investments in China and Russia. He recommends jurisdictions like Finland and the Americas (like Nikico Eagle) to minimize risk.

Conclusion

Beno’s insights emphasize a disciplined, cyclical approach to investing in the junior mining sector. Success requires understanding market dynamics, identifying promising metals, evaluating management teams, recognizing mini-bubbles, and being prepared to act as a trader, knowing when to buy and, crucially, when to sell. His book provides a framework for investors to navigate this complex landscape and increase their chances of success. He expresses satisfaction that his book is helping investors better understand the industry and is being used in university finance programs.