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 thank you I'm Charlotte McLeod with investingnews.com and here today with me is Don Hansen he's a private investor who's been investing in gold and silver mining stocks for the last 21 years thank you so much for joining me great to see you as always oh me too really good to be speaking with you and just to add some context for our viewers this is our fourth interview that we're doing on your analysis process for gold and silver mining stocks so I do recommend that people go back and watch those

other three if they haven't seen them already I'll make sure to link them in the video description and now for today I hope that we can start by getting some definitions of some of the terms that we're going to be going over one of the things we're going to be referring to is three types of engineering studies and those are the preliminary economic assessment pre-feasibility study and bankable feasibility studies so could you go over those definitions first Yes yes again and um in general what I'm

hoping to do today is to provide investors with various factors that I think they should evaluate when uh deciding which mining stocks to own and so that's my intention in trying to help them do that and in terms of the engineering studies these Studies have specific criteria that the Canadian government establishes for them and the their various stages then of that evaluate the uh deposit the project in terms of whether it can become a mine or not the very first one called the preliminary economic

assessment which obviously is the the first one that explorers will be developing when they think they have enough of the right kind of deposit in gold or silver that they think that it it can work and so then they pay an engineering firm and the money would usually cost a few million dollars to actually come up with this analysis and so that then investors can get a sense for whether or not this project is actually has real potential or not and so we'll talk about that as we get into the various stages after

that the next one is the one that the developers do and it's called the pre-feasibility study PFS and and all that one is is just more detail where the engineering study explores more things and the uh confidence level of the information about the deposit in terms of whether probability it really has what they think they're going to have and that's where we get into the the confidence criteria that I'll mention in a moment and then the third one is so-called Bank visa bankable feasibility study and that

has yet even more detail and then so investors and everybody has even greater confidence that they really have the the possibility of a successful gold mine it's called bankable because you have to have one of those if you're going to borrow money from somebody particularly Banks and they want to have less risk so you're you're de-risking the process as you go through these three stages and um the other thing that goes involved is involved with that is the so-called confident I call confidence criteria

that is a exploration company or developer or whatever uh can say well I have uh such a grade of gold at so many depths and all this other but what they're really looking at for the initial one is is a one that's called the inferred resource and basically what that refers to is the spacing of for example of the drill holes hypothetically if for example if you had drill holes every 100 meters and then another one in the north and south on another 100 meters that isn't there isn't a rigid rigid

number but then the thing is when you go out to the pre-feasibility study then the uh spacing would be maybe 50 meters so you see you're getting it denser and for the bag of little visibility study even more detailed so that there's a better idea of what's actually in between the various drill holes well you you know if it's the closer they get the greater confidence you am then okay they really have what they think they have and so that's the the sequence and so the sequence then is inferred and uh uh

then uh measured and indicated is the middle one and then proven and probable is the third one and most confident one and so the inferred would be what would be the basis for the Pea or preliminary economic analysis and then the middle one the pre-feasibility study would be based on the measured it indicated a grade then for the ore deposit and the feasibility study the bagel will be the belly study is for the proven and probable and so they that's how they fit in the sequence of of development so and

and they're going to the investors are going to see these terms a lot so it's really important that they understand what they mean and how they fit in this process of going from basically a moose pasture to a gold mine yeah those are definitely going to be some of our key terms today I think you explained it very well showing how those studies line up with the the deposit criteria so we'll have those we'll be talking about those today and so we're going to be looking as you said at the criteria that

you use when you're evaluating deposits for gold and silver companies and where we're going to start is with some of the general things that you want to see kind of at all stages from the smaller companies right up until the big ones so we'll start with that broad umbrella there and and learn what characteristics that you are looking for okay well there's really four that I would consider as the primary ones that apply all the way across the board the first one of course is management and and

that's a really big thing as as every investor would realize but I see Management in different ways for the different stages production being the final stage the development is another stages of the exploration of the third stage the beginning one The Producers I like to see CEOs that have been worked up through the ranks that know how to build a mine and how to operate a mine what that also means that I don't want to see lawyers and accountants doing that I want and the reason is that in

order to be a good manager head of mine you need to have done a lot of the things that you have hired other people to do and if you're a lawyer and accountant you're not going to know the same things or be able to evaluate their performance so I think it's really important that you have a CEO so that's my preference when I look at a at a mining company in the developers then that's a very challenging level because the CEO of a developer needs to actually have more skills than either of the

other two and that's because they're uh having to be involved with raising money they're going to have to be involved with hiring people they're going to have to evaluate a whole lot of different things and so that they can take the process through to where they're ready to actually try to build a mine and so that I wouldn't say necessarily you wouldn't want to have a lawyer an accountant but and there are a few uh very very outstanding CEOs who have done all of those things so I don't want to

but that's from my personal preference uh the developer management is probably the most important which is why I'd like to go to things like pdac or the Vancouver resource investment conference and actually meet the CEOs and talk to them and for me that gives me a greater confidence when I can ask them that what I consider to be the The crucial questions like okay what do you see is the biggest problem for example tell me about that and see what kind of an answer I get so um the management there

at the developer level is really critical critical at the exploration level is a different kind of thing because the exploration CEO needs to have first of all be able to raise money because if they don't have any they can't drill holes but they also have to have the steel to hire exploration geologists who are going to go out and actually find it which is why they want to be able to hire people like that who've done it before so that's my issues about management but it's of

course critical and so take a close look at that then the next one is um the ownership I like to see ownership that's significant in this in the management team in the beginning say with Explorations I like to see at least 20 percent maybe more because you want to have skin in the game because the real weakness especially in Exploration is that they dilute you to Oblivion you know you want them to not not be deluding you and if they have ownership then they're not going to want to dilute

themselves so it's really important in that respect the other issue that I like to see is that the outside investors that there are some of them who have very strong financial positions and reputations I mean through the ideal of course is if you had what Eric Sprott and Rick Rule and people like that you know what I mean you know if they're seen as being investors then oh okay that Rick rule has probably done a lot more research than I was ever going to do and if he likes it you know so I'd

like to see that doesn't happen all the time but it's something to to look for who are the outside investors who are like you then going to have have done the research and and so it adds credibility to uh to that then um the other one is location and a location is an enormous issue because you want to to have the location have political stability taxes safety a rule of law infrastructure labor availability weather relationship with the locals permitting issues all of those things are wrapped

up in the location and of course in in terms of The Producers that's not so much because of course with producers you reduce the risk most of the risks are are taken care of the risk de-riskers is the developers but the one thing that I would say in producers is that you know most of them are going to have multiple lines in different locations and I like the ones if I was going to invest in them where they are in countries for example one like agniko Eagle their minds are in Canada and Australia maybe Mexico there's there are

none in other places like that at prickly Africa which right now is having big problems there's some wonderful gold deposits in West Africa but there's also been uh coup d'etats in Mali and perquino Faso and Niger and within the recent months and and that I don't want to be involved that there's too many things that could go wrong in those kinds of situations so um anyway so location is big and we'll I'll talk about further as we go through the other stages but in terms of

The Producers it's really just don't be in in places that you have a lot of potential risks involved then the last one is the financial status and and the producers I'd like to see them have little or no debt and and to pay a dividend that tells you that they're they're real solid and there are many of the larger producers now who are paying a good dividend three four five percent which is a very healthy and you know some investors may find that extremely attractive they don't have the uh share

price appreciation there um but on the other hand there's less risk and having a dividend that you can rely on is very nice because you're not going to get a dividend from a developer or an explorer that they're all needing money not any not sharing and so well uh uh that's something else to think about oh that was an overview of the factors that investors should look at for every level of mining company from producers to developers down to exploration now I know you have a list of things

that you should look for specifically in each of those categories so let's start with producers and then work our way down to developers and exploration of companies looking at the factors that you would consider for those specific categories of companies okay so then in terms of of what are we looking for in producers when we evaluate them and I can start with that in terms of looking at their websites and and all these companies have very good websites so all of you investors if you don't figure it out already every

gold mining company Explorer all at all levels has a good website and a corporate presentation and you want to click on the cardboard presentation and read their story and that's how they communicate with us and so you want to make a habit of the first thing if you're listening to any kind of company you want to go there and and check that out and and they will tell the whole story because that's how their investor relations department is knowing that they're marketing the company to you the

investor so the thing I look at in in looking at the producers is what is their current uh production and their gross forecast or production and some of them aren't going to have that much reduction forecast some of the other ones will I'd like to see if they're going to have growth that it's internal growth a lot of times if they grow by mergers and Acquisitions which sometimes that works out well other times they overpay and there's issues with that so you want to be if they're going to grow acquisition wise

then you they need you need to talk to the management about how are you evaluating these things because sometimes they pay way too much that happened in the previous cycle where there was a lot of big mining companies that paid way too much for not such great projects and then when the downturn came they were really hurting because of it and so that's one of the issues in terms of outside investors who aren't invested in gold mining say well look what happened with those the the the industry before so the current

reality is that the bigger producers now are very much careful more careful about their Investments than they used to be back 15 years ago so anyway that's one thing the other thing just to look at what's the the current cost of production and the forecast of that cost I'd like to see The Producers if I'm investing in the producers to be below average in their cost all in sustaining costs aisc and twelve hundred dollars an ounce for gold is roughly the average and I like to see it be below that

whenever possible that gives me more confidence and the other thing of course is I yeah mentioned is the financial strength is that they have no debt and they pay dividend so that's the that's the producers then in looking at the uh developers there's um a lot of North things that we can that they need to be evaluating the first thing is that the Pea has been completed and then you can then you consider them developed because they've got something to develop and so then you want to look at all the details that the

Pea has and the peas will be on the websites and so you want to read them very carefully it's going to tell you what their projection is for how much they're going to produce what the all-instating cost is going to be what kind of line is going to be open bid yeah or or underground and the mining methods and the processing methods and all of those details and so uh you want to read those very very carefully and then of course the management issue you want hopefully this isn't always

going to happen but ideally you would want to have a management team that had done the same thing they're trying to do this time before successfully and and and the absolute Holy Grail is if they've done it in the same country and you don't find that very often fun but when you do where someone has built a mine in uh the same country in the past uh you want to give a lot of weight to that because that's you're removing a lot of risk uh automatically when you're getting a management team because then

they know all the the things that can go wrong because they've been there before uh permitting being one of the big ones because so they know who you have to deal with and how you have to do it and so forth preferably they even can speak the local language which is ideal if you're in Latin America and South America if you can speak Spanish and have a staff that does that all that is all positive then um the other thing that I like to do is calculate the initial capex and divided by the annual

production and I like to see that calculation come out at under fifteen hundred dollars I mean the for example what we're doing is saying if the capex was 150 million and the company was going to produce a hundred thousand houses a year then if you divide that you'd get 1500 and I'd like to see it at that level or lower if it's higher than that then in the potential investor wants to ask a lot more questions why is it that high because for um and this is primarily for open pit which is what

most of these mines are for underground that's another deal it's going to cost more money and and you need to dig in to that and and that's another I won't take time to talk about all of those issues it's too complicated but uh most of the minds that I'd look at and because I prefer open fits because they have less risks and they have less Capital expenditures you have to drill fewer holes because they're closer to surface and and they don't have to drill as many

because they tend gold tends to be relatively well dispersed whereas with underground they're much deeper and the and the veins are narrow and so then how do you know how much you got down there so it's another whole story which is why I prefer open bit and we won't get into that but uh it costs more in in many respects now this would mean there's some great underground project they're notorious very very high grade but they have to be high grade because there's so much more involved than so many more

problems okay the other thing that I'd like to look at is the depths of the deposit compared to the grade of the ore that they're talking about I'm not going to go to into that because it's a very complex situation but you need to be recognized that the deeper it is the more dirt you have to remove and and and uh it just gets more expensive so and then you have all these issues regarding that and because then it takes a lot of money to move the dirt so with the open pit project the more dirt you're removing and it

gets more expensive and so there's a criteria that they calculate called The Strip ratio and basically what that says is it's how many tons of overburden you have to remove for each ton of ore that you get that you can process that's what the strip ratio says and in the company that's going to be developing an open bid project is going to tell you that and of course what you like to see is like a one-to-one where you've got one Sun overburden but you get one done out if it gets bigger and bigger number then

you've got to start looking at oh wait a minute you know how's it then it gets too deep and and there's some interesting situations where some developers of open pit say well yeah but I've got you know the gold but it's the drill results show that it's 100 meters or 200 meters deep well maybe that's okay provided as you work down to that you actually can make some money on the way so that's a very complicated issue I will go there but investors need to look at that because there's a lot of

potential glitches that can come abortion and there's we're going to spend a whole meeting on that one okay the um the other one is the uh an initial capex divided by the market cap of the company and I like to see that ratio be less than three in fact significantly less than three because it's hard for a company that has a 100 billion dollar market cap to raise 300 billion dollars or 400 million dollars to do a project specific especially when it's an open bid project I mean and then

there's quite a range that you can find my favorite company that I have a big position in their Market chat caps next to market cap is well under one I'd like that because there's then you have to you don't have to dilute the generals to raise all this money to do that and so you want to that look at that carefully and and certainly that varies also depending on the condition in the in the gold market if go gold prices are going up and everybody's really rocking and rolling then you could be easier for a

developer to raise three or four hundred million dollars for that kind of project but right now especially no way it ain't because as you know the market isn't very good right now and and and and the evaluations of the developers and the Explorers are not good and my portfolio is down so you know that's the issue that you need to be careful about you know if to say that you've got a developer and say gee I got a great project but I need to raise this much money and you say well probably not the

only way that that would become a mine today is if it was acquired by a big producer who then had the money and a lot of times that's what happens with a lot of of exploration projects particularly or even some that are down the road with development but they realize that they're never going to raise the money without diluting the shareholders to the point where it doesn't work so they'd be better off to sell it off which is what happens so anyway so we get to that then the other

thing oh two more is is the permitting and that one you really want to have a developer that has a a staff that knows how to do permitting because that I have seen permitting squash more projects it's it's and then can be environmental stuff it can be political stuff it can be that the locals don't like it don't want to have a mine in their neighborhood so you really want to get some sense for okay wherever this project is what are the permitting issues and and it's the developers that

are the ones that are going to be doing that and and and making that all work and then there was the one other thing that the developers should provide you the investor with and that's a timeline the timeline that tells you uh when the pre-visit Bill's ability studies going to be completed when are they going to get the permits when are they going to obtain the financing when are they going to construct the mine when are they going to be in production they should show a timeline so that you can see how

long is that going to take you know is it going to be a year and a half two years two and a half years you'd like to know that as an investor because if the longer it takes for them to get into production the more often they're going to have to raise more money which means you're going to get diluted so the timeline is a big deal so you want to have a sense for that as soon as you can when you're investing in developers so then we go to per do the explorers and of course I've mentioned about the

management and the fact that I like to see them have a skin in the game and the outside investors and especially if you have good outside investors where they need when they need to raise money that there's probably going to provide it whereas if they have to go go totally to the public every time you're probably not going to have as easy time of raising money and with the Explorers raising money is the whole deal there's no revenue and and there's nothing so they that's a critical manner that you

want to have some sense for then um let's see well the other thing is when are they going to need to raise more money and how much and from who and so if you're investing in explorers you want to talk to them about that okay where is it coming from how have you been getting your financing and because the the thing that happens to most explorers is they run out of money and they haven't found enough from drilling to justify investors putting more into it so it goes away and that happens all

too frequently unfortunately so then uh let's see what else are we looking at yeah the other thing about the management of the Explorers is that they actually hire exploration geologists who have found deposits before then they say well maybe then they have credibility and so you want to ask about that now these guys that you've gotten that you hired and they if they fund something before do they really know what they're doing uh and then let's see and then ask them when is the Pea going to be

finished when are you planning to do that that gives me some sense for how long I'm going to be invested in this company before there's some good news that tells the market that they really have something that they can be can be a mine oh another one that I'd like to focus is is do they have a lab that they work with that is going to promptly give them drill results I've seen some exploration companies I've invested in and there go months and months to say well why there's no results why don't we

know what even well their lab is all backed up well no that doesn't you you the exploration companies should have a good land so that the results are turned around that indicates what the Drillers assaults were because you wanted you spent the money you want to get that into the market particularly if the drill results are good and so the stock price goes up so that's another issue that when I first got into this deal I never thought it would matter but it does you would you want to get the lab

results and uh let's see oh and is the project in an area where there's existing goal producers that's nice because those are potential acquirers and that's that's always a plus that you say oh well yeah maybe they don't this team that the Explorer they find it but they're not developers anyway so they're going to probably want to sell it and if there are other producers in the neighborhood they're going to find it that that's beneficial for them to get another project that isn't a long way so

they can same management team can then manage both of those projects so it's good for the producer it's good for the Explorer so sometimes you find that and if you do you want to check that office being a A plus and then of course there's the infrastructure availability and labor availability a lot of times you're going to find these exploration projects but they're often The Boondocks someplace and so then you've got problems with getting supplies and labor in there is there electricity and and uh

and all these other water all the infrastructure the road you know and and so you want to have a good sense if you've got a project where the infrastructure is all really good as well as the fact that it's not so far away that you have Labor problems and then that's all and especially where there's an area where there's other mines then there's actually people who have experience working in mines and so the labor availability availability is also something that I like to look at

say what is that how does that stand so that if this thing's going to become a mine obviously you've got to have people particularly one who have some experience so let's see if what else I have here yeah I think that's pretty much covers most of what I was going to offer I was a very thorough list I like how you broke it down between things that we need to look at for all types of mining companies and then going through producers developers and exploration companies I have one follow-up question

so you mentioned that of course you like to go to events like theorc and pdac to talk company Executives but a lot of this information you should be able to find on a company's website so I wonder for you if you are going to the company's website and you're having trouble finding answers to your questions is that a red flag for you how do you feel about that yeah well I do tend to evaluate the quality of the website if if the website is good if it's kept up to date if I get to go to

one website and it hasn't been updated in six months I mean what and then and then the data when I look at the day data and and and the data on page three doesn't match with the data on page eight then wait a minute so I have called the I call the investor relations department by the way they always provide a contact at the end of the website and frequently I will call the the IR a lesser relations person and say did you know that you know page three doesn't agree with page eight and like

and or you haven't updated it why is that what's going on here so yeah I think if the company is really on top of things the website should be very well done and and if you've seen you know since you're looking at various companies you're going to see a variety of websites you'll begin to get an idea of what's a good one what are you are they answering all your questions do they answer them correctly or is it a lot of mumbo-jumbo and and um so this is important if they can't can't tell their

story very well or they don't keep the information in front of the investor on a current basis and all that then that's a that's a red flag absolutely the other thing though I like to go to the uh conferences and meet the the management because I really want to invest my money with people that I think I might want to invite to dinner I want to have a good feeling about that I mean I'm a I'm a people person and so I like to feel that you know they're they're going to answer

my questions directly they're going to make an effort to help me understand something that I'm trying to get some understanding of and it just helps me a lot and this also the body language of the people in the booth I mean I'm I'm I notice those things yeah and and and when I see where there's some employee in the in the in the in the booth that's sitting there listening to the CEO talk to me and I and his the look on his face is oh he's telling him that one again kind of thing you know

you pick up a lot that way and I've been going to these things for 20 years I've started going to them the Vancouver resource investment conference well at least 20 years ago a long time and I'm very much looking forward to going to this next one but I hope that I can see you there by the way we would definitely be there at the RAC this coming January so I really do hope that I see you there for now this is a really great conversation I think it'll be very useful to our audience and just a note

for everybody out there if you do have questions for Dawn or topics that you'd like to see them covered leave us a note in the comments and we will try to take that on once again I'm Charlotte McLeod with investnews.com and this is darn Hansen thank you for watching if you like this video make sure you subscribe to our Channel we'd also love to hear your thoughts so leave us a comment below we'll see you next time [Music] thank you