Investors love the potential upside and excitement that junior exploration companies bring to their stock portfolios — especially in the case of emerging industries, such as battery metals, where strong long-term fundamentals and a growing demand exists.
At the same time, junior exploration stocks come with their own set of built-in risks — many of which can be mitigated early in mineral discovery — but risks, nonetheless. No one wants to lose out on a potential fortune, but no one wants to lose their fortune, either.
So, how can you tap into the most upside potential with the least amount of risk?
Well, this article explains how to find that balance throughout each phase of the mineral discovery lifecycle and just how investors can capitalize with the greatest potential gains while shielding themselves from risks and downsides of investment.
We’ll take a deeper look at a real-life case study of the TSX Venture Exchange tier-2 battery metal exploration company, Fuse Cobalt Inc. (TSX.V: FUSE) (OTCQB: FUSEF) (FRA: 43W3), and what it’s doing to protect itself while seizing on some pretty unique opportunities that have come its way.
The 2 Sweet Spots of the Mineral Discovery Lifecycle
It’s important to note that there are risks that run throughout the mineral discovery lifecycle. It’s also necessary to realize that those risks are what makes it possible for junior mineral exploration companies to have potential for such an alluring upside.
After all, nothing risked, nothing gained.
The first way to de-risk investments in junior battery metal exploration is to know and understand that there are 2 sweet spots that can be found in the mineral discovery lifecycle. A visual timeline of the risks and potential is identified using the Lassonde Curve, as pictured below, along the mineral discovery lifecycle.
So, where do these 2 sweet spots offset the risks?
- During the phases of “Concept” or “Pre-discovery”
- Early in the “Development” phase
Timing is very important. You’ll want to consider investing into stocks under the guidance of a personal investment advisor. But, you’ll want to do this before it is too far along either of the 2 large upward movements in stock price, as illustrated by the Lassonde Curve.
By locking in your investment with the most upside potential, you’ll naturally offset any risks that are involved along the way.
De-Risking Case Study: Fuse Cobalt Inc.
The second way to de-risk your investing is to select junior battery metal exploration companies that have, essentially, de-risked themselves:
- They’ve pulled together a team of proven leaders in business development and resource acquisition, and are building a strong foundation from the ground up.
- They’ve made undeniably smart project acquisitions in world-class regions across the globe and are doing everything necessary to ensure the feasibility of operations on and off-site.
- They’ve done the hard work of planning and advancing quality projects and continually strive to optimize their results over time.
A deep-dive of Fuse Cobalt Inc. breaks down 4 of the most important strategies junior mining companies employ when de-risking their businesses. As a case study, we’ll highlight how Fuse Cobalt has applied those strategies to their own business in particular.
De-Risking Strategy #1: Target A Strong Sector With Positive Long-Term Outlook:
Target a sector that is widely regarded by research analysts to establish a strong future demand backed by solid forecasts for long-term growth. There’s less risk that, somewhere along the junior miner’s mineral discovery lifecycle, demand or prices will drop. Instead, the sector is more likely to grow stronger as time passes.
How Fuse Cobalt has used this strategy to de-risk itself:
- They’ve focused on the established yet rapidly emerging battery metals market driven by the exponential growth of the electric vehicle (EV) market. It’s important to mention here that the global battery metals supply chains involved need to expand by 10x to meet projected critical minerals needs by 2030.
- The company specializes in cobalt, a clean energy metal that’s becoming increasingly necessary for EV batteries and powering the green revolution. According to the International Energy Agency (IEA), the mining industry needs to build 17 more cobalt mines by 2030 to meet global goals for net carbon emissions.
Surging Cobalt Demand for Lithium-Ion Batteries
De-Risking Strategy #2: Avoid Geopolitical Conflict:
Steer clear of regions mired in conflict and, instead, set up shop in well-regarded and ethical international mining jurisdictions. There’s less risk of getting sidetracked by governments taking over assets (i.e., nationalization), workers going on strike, economic meltdowns and so on.
How Fuse Cobalt has used this strategy to de-risk itself:
- The company has long avoided troublesome cobalt mining districts, such as The Democratic Republic of Congo (DRC), which has about 70% of the world’s cobalt supply but which also represents political instability and instances of unethical mining practices.
- They’ve targeted the mining-friendly, politically stable, world-class mining jurisdiction of Ontario, Canada, which was ranked #12 out of 77 for “Investment Attractiveness” by Fraser Institute’s 2021 Mining Survey.
De-Risking Strategy #3: Leverage Existing Infrastructure, Labor & Industry Investment:
Acquire projects that are close to what’s needed for any mining project: roads, power, equipment, field service companies, experienced industry workers, ongoing investment in the region’s mining sector. This way, the junior mining company can reduce its capital expenditures (CAPEX) and operating expenditures (OPEX), lower its overall exploration costs, and ride the momentum of the area’s collective development.
How Fuse Cobalt has used this strategy to de-risk itself:
- They’ve acquired 100% ownership in 2 cobalt projects that are close to power and water, both of which were previously owned by mining giant Glencore ADR (OTCMKTS: GLNCY).
- Both projects are just outside of a town in Ontario named Cobalt, with a skilled labor force readily available.
- The projects are also less than a half-mile from the only cobalt refinery in North America, which has received recent investments of $5 million CAD from the Canadian Federal government, $5 million CAD from Ontario’s provincial government, and a total loan commitment of $45 million CAD from mining and commodities trader giant Glencore to refurbish and reopen the refinery.
De-Risking Strategy #4: Assemble The Best Possible Leadership And Advisory Team:
Build a company of proven industry experts and entrust this team to lead all internal and external projects, exclusively. There’s a greater chance of success at raising capital when needed, securing all necessary permits in a timely manner, procuring top-quality exploration equipment and drill teams, and successfully executing exploration programs. There’s also less of a risk in making mistakes due to lack of experience, which could ultimately lead to lost opportunities and delays in the exploration timeline.
How Fuse Cobalt has used this strategy to de-risk itself:
The company has assembled an experienced and proven group to run the company [learn more here]. They’ve also secured a well-seasoned team of advisors, including the recent appointment of:
- Matthew Halliday, P. Geo, cobalt exploration expert, with over 15 years of experience in mineral exploration and development.
- Frank J. Basa, P. Eng, cobalt exploration and mineral extraction expert, with over 37 years of experience, decades of cobalt mineral exploration experience in the immediate area, while being a trusted individual within the local First Nations community
Summary
In summary, investors can tap into the most upside potential of junior battery metal mining companies while reducing their risk by investing in junior battery metal exploration companies that:
- are in either of the 2 sweet spots of the mineral discovery lifecycle.
- have already eliminated most of the risks by implementing the 4 strategies outlined above as demonstrated by Fuse Cobalt Inc.
Now it’s time to do your own due diligence. Speak to your financial advisor and find those junior miners that fulfill those de-risking requirements. And check out this infographic by Fuse on the Lifecycle of Mineral Discovery.