Red flags in management and promotion
The corporate warning signs: who runs the company, where the money goes, how the share structure is set up, and how news is presented. The companion to red flags in exploration reports.
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A good deposit in the wrong hands can still lose investors' money. Before the geology, check the people, the spending, the share structure and the way the story is told.
The technical warning signs, such as selective intercepts and missing quality control, are covered in red flags in exploration reports. This article covers the corporate ones.
People
- No relevant track record: no one on the team has taken a project through studies, a sale or a build.
- Part-time leadership: executives and directors spread across many companies.
- A board with no independence: friends, family or the same group that controls several other juniors.
- Frequent turnover of chief executives, chief financial officers, auditors or the technical team.
- No geologist or engineer in a senior role, or a technical team that is entirely contracted.
Money
- High overheads: a large share of each dollar raised goes on salaries, offices, travel and promotion rather than into the ground. Compare general and administrative costs with exploration spending.
- Related-party payments: fees to companies owned by insiders for management, drilling, consulting or office space.
- A short runway: cash for a few months, with no clear plan for the next raise. See how juniors are listed and traded.
- Frequent small raises at falling prices, each just enough to survive.
- Spending that does not match the plan: money raised for drilling spent on something else.
Share structure
- A large warrant or option overhang that will cap the share price as it is exercised.
- Cheap options granted to insiders just before good news.
- Little insider ownership, or insiders selling into promotional campaigns.
- Many shares issued for acquisitions of projects from related parties.
Promotion and disclosure
| Claim or practice | Why it is a warning sign |
|---|---|
| "In-situ value of $4 billion" | Contained metal times price ignores grade, cost and the odds of a mine: see valuing a junior |
| "On trend with a world-class mine" | A neighbour's deposit says little about this one |
| Best intercepts in the headline, the rest in the appendix | Selective presentation of results |
| Historical estimates shown as if current | They may not meet a modern code: see historical data |
| No qualified or competent person named | Technical disclosure usually needs one |
| Paid newsletters, social-media campaigns, sponsored "research" | The audience is being sold to, not informed |
| A sudden pivot to the hot commodity of the moment | The company may be chasing sentiment rather than geology |
Corporate warning signs
- Frequent name changes or reverse takeovers into new businesses.
- Late filings, auditor resignations or qualified audit opinions.
- Title held through a chain of private companies or nominees, with conditions not yet met.
- Disputes with partners, contractors, communities or regulators.
A press release, decoded
An invented headline:
"Company X drills 4.2 m at 38 g/t gold, on trend with a 10-million-ounce mine; in-situ value exceeds $1 billion"
What to ask:
- How long were the other holes, and what did they grade? Four metres can be one lucky interval.
- What is the true width, and was the high grade cut?
- How far away is the neighbouring mine, and is it the same geology?
- An in-situ value from one hole is meaningless.
- Was the release reviewed by a named qualified person?
- Is a placement about to be priced off the news?
Green flags
The opposite signs are worth as much: a team that has built or sold projects before, meaningful insider buying, low overheads, clear disclosure of weak as well as strong results, independent directors, and spending that matches what was promised.
What to take away
Read the company as carefully as the deposit. Most of these warning signs can be checked from public filings in an hour, and one or two of them are enough to walk away from an otherwise attractive project.
The press release is invented. This is educational material, not investment advice.
Key terms
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Educational material only. Nothing here is investment advice or an offer to buy or sell any security or mineral interest.