Grande Portage Resources Ltd. (GPTRF)

[nlightn]

Ten Tips for Picking Resource Stocks
Wednesday, June 28, 2006
By J. David Mason, Managing Director, Augen Capital Corp.


(originally published in the StockHouse Natural Resource Supplement on March 2, 2006)

While a geologist can tell the difference between fool's gold and the real thing, you don't need an earth sciences degree to make money buying mining stocks. Here are 10 suggestions to help you hit the mother lode.

1. Look to management - It doesn't matter whether it's a small resource company involved solely in exploration or one that is getting ready for, or in, production; management is the key. You have to know their track record.

Investors can learn much about a management's performance history through the Internet by accessing sites such as SEDAR and StockHouse for a stock's daily volume, which is an indication of the quality of those making the decisions. Many of these Internet sources will indicate what other companies management is involved with and you can see for yourself how successful these companies have been before you invest.

2. Measure its volume - You should develop an exit strategy before purchasing any stock. If you can't get out as easily as getting in, don't bother buying it. A good rule of thumb is to stick with a stock that trades at least $25,000 worth of volume in a day. Never buy more shares than you can sell in 30 days, particularly with a resource stock.

3. Location - A promising property is worth little if it's in such a remote location that the resource can't be extracted economically. Mine locations can be remote provided there is infrastructure surrounding it.

4. The resource itself - This should be divided into two categories: an exploration target or defining reserves to bring into production. While an expert opinion is required, potential investors can access SEDAR documents to determine whether a 43-101 report is available and whether it's recommended by someone who is well known within the industry. This applies to exploration, reserve definition, and properties ready for a production decision.

5. Infrastructure - This can be defined as what's available to bring the resource into production, such as nearby roads, railways, power, and, in some cases, natural gas or other energy sources necessary to fuel the plant.

6. Structure of the stock - If there are too many shares outstanding relative to the trading volume it may be difficult for the stock price to increase in value. Tightly-held shares (the majority of the stock owned by management or other insiders) may be detrimental to institutional buying, yet could be beneficial for the retail investor as any drill results will be reflected in the stock price more directly.

7. Commodity trend - If the price of gold, for example, is on an upward trend, shares of a company with a prospective gold property or development will likely be in greater demand in the marketplace, driving the price higher. An obscure commodity that people will need to examine in greater detail will, thus, be a more difficult investment in which to make money.

8. Secular trend - A good time to buy resource stocks is May through the summer when activity is relatively quiet and think about accumulating early in the fall, perhaps taking some profits late October and November. There's another trend that comes each year in early January and runs through the middle of March. Investors should also look to the four-year business cycle - are we at the bottom or the top?

9. Find out who follows the stock - Look at the resource company's Web site to find a list of analysts who have written reports on the company. The quality of the reports and whether the company is being followed by a large number of IDA member firms are all positive developments.

10. Exploration versus production - If it's an exploration company, is the company close to a drill decision? Does the company have money in place to start drilling? Resource stocks often make a move upward once a drill decision is made. Likewise, if the company is close to a production decision, the stock will more often than not make a nice move upward.

http://www.stockhouse.com/shfn/article.asp?edtID=18418