Aurora Acquisition Corp (AURC)

[MUSHROOMKING]

Q: Many exploration companies sit idle in terms of pricing and have negative price-to-earnings ratios... How does one go about ascertaining quality? – K.M.

A: Did you ever hear that saying "A boat is a hole in the water where you throw money"? Well, the same can be true for exploration companies... only it takes a whole lot more money to keep them afloat.

But I've come up with a few criteria that you can use to find quality investments: people, finances, projects, and "endgame."

An exploration company's most important asset is its people. Look for a management team of experienced geologists, folks with 15 or 20 years and some discoveries to their credit. I hate to see a board made up of six or seven bankers or financiers... That's a huge red flag. If you don't like the people, walk away.

Evaluating finances can be tough. As you noted, most of these exploration companies have no earnings. Instead, they generate cash by issuing shares. So you need to ask about the burn rate and cash on hand... The burn rate is how fast the company spends money (to keep the lights on at the office, to continue exploring, etc.) If the annual burn rate exceeds cash on hand – how much money the company has in the bank – then walk away.

The hook for every exploration company is its projects... the stories investor relations twists into fairy tales of wealth. These are the trickiest part of the company to analyze, and it helps to have an expert. But two simple things to consider are how many projects the company has and how far they are from roads, electricity, water, people, etc. If a deposit is somewhere north of the Arctic Circle or accessible only by dugout canoe, chances are it won't become a mine in our lifetime. And if a company only has one project, walk away.

A mine is our endgame. We are not treasure hunting here. We want a reasonable chance to make a buck on the stock. That means the company must either develop the project into a mine or continue to find new discoveries to sell to the majors. If it can't do that, then walk away.

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