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Low Prices Don’t Justify Dismissing Entire Sectors

Low Prices Don’t Justify Dismissing Entire Sectors

As I discussed previously, the coal market -- on a worldwide basis -- is dismal right now. But certain parts of the world like India are still doing a brisk business.

The thing is, resource investors and project developers are too often focused on fundamentals across an entire sector. If gold prices are up, we assume gold projects are a good idea. When coal prices drop, we throw out our entire slate of carbon-focused ideas.

But that's a mistake. With any project, we need to look at the details.

It's certainly true that now is a difficult time for many projects in downtrodden sectors, for example gold, coal, iron ore. Pricing is generally challenging, and exploration and development capital is much harder to come by than it was a few years ago. Related: U.S. Oil Glut Story Grossly Exaggerated

But to discard these sectors wholesale puts us at risk of missing some great opportunities. Such as the chance for coal projects capable of feeding an upbeat market like India -- which may be available in a developing producer like Kenya, as I outlined last week.

The same is equally true of site-specific opportunities in other sectors. Whether it be geographic opportunities, or geologic ones.

In terms of the latter, the best strategy for the current uneven markets is to focus on only those projects that have the chance to yield top-tier producers. The kind of mines that will be sought after by global mining companies regardless of commodities prices.

This comes down to the right targeting. Researching and designing projects that have a shot at yielding a world-class discovery. Related: Texas Town First Of Many To Switch To 100% Renewable Power

Today, we need to be merciless in filtering out projects that are marginal. Whether that means low grades, small size, constrained infrastructure, or other drawbacks.

The upside is that in today's subdued markets, competition for projects is waning. Allowing us a wider selection of potential targets.

The difficult part is in the concepting. Making sure that the deposits we're pursuing have indications of significant scale, such as:

• Proximity to large deposits (a strategy my associates and I have been employing of late in the open-field exploration terrains of Myanmar) -- there's nothing better than a giant deposit surrounded by miles of virgin ground;

• Evidence of permissive geology similar to nearby and significant mines -- just because a project is physically close to a big deposit, doesn't mean it has the same rocks;

• A deposit model that has global analogues of acceptable size, scale and grade -- make sure you're looking for something that's going to be worthwhile to find;

• As many data points as possible suggesting good potential -- grab samples, geochemical anomalies, and structural and stratigraphic data that match the model we're looking for. Related: This Struggling Commodity Is Still Booming In One Part Of The World

If we can do those things, we have the makings of an "all-weather project" --the type that is going to be meaningful in market tops and bottoms. We need to be well-considered in our decisions -- which includes not being globally pessimistic about entire sectors just because prices are down.

Here's to keeping an open mind,

Dave Forest

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