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Wednesday
Feb122014

Who Has ‘Skin in the Game’ in Your Gold Junior? – Jeff Desjardins


Today’s Sprott’s Thoughts comes from Jeff Desjardins at Tickerscores.

Do management teams play alongside shareholders? Are their interests aligned? Is their main motivation to win big if the company succeeds? Or is it their monthly paycheck?

This piece should help you better understand who owns most juniors, which can make you a smarter investor in the natural resource space.

Sincerely,

Henry Bonner

By Jeff Desjardins, Tickerscores.com

No matter how good the resource, if the management team is making the wrong decisions for shareholders, you could see the opportunity disappear.

You want managers who stand to win big if they succeed.

In a previous article, we highlighted one measure called the General and Administrative Expense Ratio (G&A). This measures how management puts shareholder money to work. A high G&A ratio means a company is spending a lot on overheard – little of investors’ money is actually going into the project, where the upside potential of the company lies.

There is a second important metric to look at: management ownership of the company.

‘Skin in the Game’

Management ownership represents the ‘skin in the game’ – the more they have to lose if things go bad, the more we can count on their decisions being good for other shareholders as well. This vested interest shows how much the team believes in a project.

If management has no ‘skin in the game,’ why should they care if the share structure gets diluted or if the stock is rolled back again? They can just re-price their incentive options when it looks like they can make a quick buck.

Well worth a read with some very interesting charts, please click here.

In September 2011 the Gold Bugs index, the HUI stood at 630 as gold prices peaked, since then both have trended lower with the HUI losing about 65% of its value. The bottom has been called a number of times and after such a dramatic decline its difficult not to think that we are there now. However, as we all know the timing of any investment is crucial to its success and that is exactly what we are trying to do here, trying to pick advantageous entry and exit points. If you would like to know which stocks we are buying and selling please join us atStock Trader our premium investment service.

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