How can we bring lost audiences back to the junior resource sector and make it relevant to young people?
How can we bring lost audiences back to the junior resource sector and make it relevant to young people?
Several years ago I became a founding member of the Share Collective, initially bankrolled by Andy Greig, the former global mining unit head of Bechtel. The Share Collective is an online platform based on my idea of combining the uncertainty ladder which characterizes the exploration-development stages of a mining project with a simplified outcome visualization based on the discounted cash flow model. The goal was to make it easy for an individual to feed basic assumptions about a deposit and a suitable mining scenario along with its costs into a form which would then generate the after-tax net present value (NPV) and internal rate of return (IRR) figures which are the basis for valuing a mineral deposit (have I lost you yet?). This proved more difficult to accomplish than expected and had to be redone during the past year to allow scalability to millions of users. When it is re-released shortly it will be marketed as an online "economic geology" tool for companies, brokers and very sophisticated investors, essentially digital "back of the napkin" valuations that do not require a brittle Excel spreadsheet. This alone, however, will not bring back the audiences the junior resource sector has lost during the past decade, at least not the North American audience, nor will it attract a younger audience for whom the resource junior sector is even more alien and inaccessible than the somewhat similar biotech sector. A key part of my Share Collective concept which has not yet been built involves enabling an unlimited audience to become visible participants in shaping fundamental expectations about a project's potential and sometimes even the destiny of the company. What follows is an attempt to share my vision of what is needed to bring back large audiences to the junior resource sector.
Imagine a global audience of stargazers discovering a galaxy of stars orbited by planets, each star a resource junior company and the planets its projects. What hidden resource potential resides within each planet, what is the star crew doing to turn such potential into reality, and what stargazers, if any, already inhabit the planets?
Imagine yourself as an explorer scanning this galaxy for signs of activity, filtering for the metal you seek, warp speeding from solar system to solar system, studying the potential from a distance. Imagine moving in closer to a planet whose fundamentals are laid out in detail on the project page of the company's web site.
Imagine discovering that you are not the first to visit the planet, that others have come before you and are now visible as followers of the project, seated in a stadium according to reputation built up exclusively by that explorer's interactions throughout the galaxy, their seats colored red, gray or green to reflect each follower's bearish, neutral or bullish sentiment toward that project.
Imagine a row of silos in front of the stadium, some very low, others very tall, lined up along a yardstick running from zero into the billions, each silo positioned to correspond with the value of the planet's outcome visualized and shared by one of the spectators in the stadium.
Imagine probing a silo to see from what assumptions it has been constructed, what tonnage and grades, what mining type and rate, what recoveries and payables for each metal, the costs to build and operate the mine, all the inputs needed for a simplified life of mine average discounted cash flow model that spits out an after-tax net present value which determines where on the yardstick the silo stands.
Imagine going through a doorway marked "discount rate" and finding a list of risk factors, each of them ranked from very low to very high by the visualizer who built the outcome, the sum of which is the discount rate used to generate the most important number, what is that planet worth if the dream represented by the silo becomes reality?
Imagine wandering deeper into the silo and discovering threads of comments critiquing the assumptions, the owner of the dream defending or conceding, tweaking a still private version to reflect new insights or corrected mistakes, a private silo to be shared at the right time, retiring the current shared silo.
Imagine the height of the silo reflecting the percentage of all the spectators in the stadium who have exercised their right to designate one of these silos, a visualized potential outcome for that planet, as their favorite, the percentage that has chosen this particular silo as their favorite.
Imagine three tall silos spaced along the yardstick, one at or near zero, one in the middle and another at the highest value end, surrounded by much smaller silos whose height reflects the relative lack of favorite choices, in some cases only one favorite which by definition is that of the spectator who visualized and shared that outcome. Who are the bears supporting a negative outcome for the project, the crazies supporting an out of this galaxy outcome, and the moderates an outcome somewhere in between?
Imagine clicking on the silo to light up who in the stadium has made this silo their favorite. Is it high reputation spectators seated in the front rows, or low reputation spectators in the bleachers? Where is the creator of the outcome seated?
Imagine clicking on the visualizer who shared the outcome and seeing the galaxy light up where that explorer has been or is still active, clicking on that visualizer's silo on another planet to see who in that planet's stadium has made that silo their favorite.
Imagine clicking on the visualizer's followers button to see who among the galaxy's explorers is tracking that explorer's shared activity, requestinga network analysis which reveals to what extent that explorer's following is visibly active with the galaxy. Are there clans and alliances seemingly working together to pump up or trash a planet?
Imagine the outcomes converted into per share values based on the company's net interest and fully diluted, and adjusted according to the stage of the project as defined by the uncertainty ladder. Imagine a parallel universe known as the stock exchange where the company trades, and compare the market price with the range implied by a visualized outcome. Is the market price within the fair value range of the expected outcome, below it, or above it? Of the three most popular visualized outcomes, to whose fair value range is the market price closest? Are the pessimists, moderates or optimists driving the market price? Who do you think is fundamentally right? When the stock price implied by the crowd's dominant favorite is quite different from the market's price, which are you willing to bet is wrong?
Imagine placing your bet in this parallel stock exchange universe, long or short, and uncloaking yourself by following the project, an action which bumps everybody with a lower reputation than you one seat farther down the line. Maybe you are a nobody who gets seated in the bleachers of a planet with lots of followers. Maybe you are in the best seat because you are the first one to follow this project. That action is noticeable throughout the galaxy. Will anybody come join you?
Maybe you are a bigshot whose emergence in the front row turns all eyes upon you, everybody already seated in the statdium, and countless more watching from a distance. What is your game they are all wondering? Will you reveal yourself as hostile or friendly towards the project, or stay undecided? Which outcome will you endorse? Already there is activity in the parallel stock exchange universe anticipating your agenda, making the stock go up or down. Will you attack the popular outcome with which you disagree by posting comments about bad assumptions? Or are you going to share your own visualized outcome, complete with comments explaining your choices? Will the crowd switch its allegiances by making your outcome their favorite? Or will they pan or ignore you?
Imagine the crowd rushing to favor an outcome with a higher implied price than the market, with a corresponding move in the market which draws the attention of another parallel universe, the regulators mandated to ensure complete and reliable disclosure by the companies and market integrity. Is there new material information that has leaked out of the company? Has the company disclosed something which violates 43-101 rules? Or is there something going on inside the Share Collective, that place they loathe because private individuals with no credentials have the right to dream and share those dreams for the world to see? The scrutineers warp into the company's solar system, homing in on the planet with the most activity, sift through the shared material for evidence that somebody is sharing inside information, halting the stock if there is a problem, or letting it trade if market movement appears due to changing crowd expectations. No more of this random halting just because a resource junior stopped trading like a dog.
Imagine the company publishing exploration results about a project, results that force each visualizer with a shared outcome to evaluate whether they shrink, confirm or expand their assumptions. Is the tonnage bigger or smaller, grades higher or lower, mining scenario shifting from open pit to underground, metallurgy requiring different flow-sheets and corresponding cost adjustments? The visualizer can confirm the shared outcome as still valid, or replace it with a new outcome, though at the expense of losing all the favorites it has attracted, a good reason not to make trivial changes. The project's follower who made that retired outcome their favorite are immediately alerted, prompting them to check out what has changed and either turning that visualizer's outcome back into a favorite, or choosing another outcome as a new favorite.
Imagine a fourth parallel universe of commentators who monitor the resource junior galaxy, who describe to their paying or non-paying audiences via blogs or other social media what the crowd is thinking with regard to specific companies and their flagship projects, the planets the crowd has colonized. They used to just write about their best guesses or what insiders whispered to them about the fundamental potential, but now they can write about the changing expectations of the crowd, the shifting alliances, not just in response to fresh news, but also during the long periods between news.
Imagine that this galaxy evolves super-heroes, individuals who through their sharing activity build high reputations defined by the plausibility votes they attract for shared stuff and by the sheer number of followers they attract, super-heroes who like all members of the Share Collective who roam this galaxy are by definition anonymous, for the disclaimer declares "anybody who shares anything is assumed to have a conflict of interest and the agenda of influencing the behavior of the market and everybody else in order to profit from that conflict of interest". Every member of the crowd is an untrusted predator who by virtue of anonymity has no real world credentials that would lure anybody into trusting what they share.
Imagine this Share Collective populated by individuals who research the fundamentals, quietly buy or short the stock based on that research before sharing their visualized outcome for a project, and, if there is a corresponding shift in the market price, take profits by trading that position. Would the market respond to sharing activity by a member with little sharing history or lots of history but minimal reputation growth because what they have shared is either just noise, imitation or outright nonsense? Probably not. The ability to influence the market and the behavior of everybody else in order to profit from that influence will require growing your reputation through consistent, coherent, plausible and ultimately correct outcome visualizations and shared commentary.
Imagine these emerging super-heroes growing their reputation, developing market moving power similar to what star analysts or newsletter gurus once had but without the accountability and fiduciary duties. Power corrupts and temptations will arise to betray one's followers, a betrayal that will happen only once, for the Share Collective remembers all shared activity, provides tools that allow members to study every member's shared history and tag them with a thumbs down or up where appropriate, a tagging activity which is also available for everybody else to see just in case you are a self-appointed thug trying to diminish the reputations of those explorers you deem to be your enemies.
Imagine you have become a high reputation member and are beset by greed, contemplating setting up your followers for a massive betrayal, but refrain from doing so, for a strong reputation can become a money-making machine whereby the high reputation member captures the arbitrage between the fundamental potential of a project and the market's perception of it. Such opportunities may be few and far between, and to prevent the reputation from decaying due to inactivity, such super-heroes may become guardians of the galaxy, guardians who rove the galaxy, inspecting solar systems for malign activity, often forming alliances with fellow white hats, and swarming any black hat operations they detect. Imagine a proliferation of Angry Geologists and Otto Rocks, knowledgeable individuals who not only defuse budding pump and dump plays, but also act as mentors to newbies who dare to try their hand at visualizing and sharing outcomes. Is it worthwhile to flush your reputation down the toilet without even profiting from betraying your audience?
Imagine not just recovering a lost audience by empowering them to understand the size of the prize and participate in shaping the narrative, but also attracting a younger generation that has never been exposed to resource junior speculation, whose market activity is limited to momentum trading in instruments such as foreign exchange and ETFs or winner-take-all bubbles such as cannabis where you don't need to know anything about the fundamentals. This younger generation is steeped in online gaming divided between reflex action games and addictive slower paced but 24/7 distributed games such as World of Warcraft which are not sustainable activities as this generation matures and starts accumulating capital and embracing child-rearing responsibilities. But nothing that they have ever engaged in included a parallel gambling infrastructure such as esports is seeking and whose essence pales in comparison to the junior resource sector because the esports participants do not affect the outcome of the real world sports activity that drives the eventual outcome of esports whereas the ability to raise capital for exploration does affect resource junior fundamental outcomes.
Imagine being immersed in a game where you have money at stake, a game where the money making part operates only part of the day and not on weekends, a game where you can be active if you so choose, where you can play the long game and go away for vacation without too much worry. Resource juniors by their nature pursue fundamental outcomes that emerge over long time periods, sometimes in abrupt lurches, but more often incrementally, while the crowd's perception and its manifestation in the market is far more dynamic. With something like the Share Collective entertainment is provided by the flow of fundamental exploration results and the actions of the stadium crowd including those members of the crowd who become players on the field as competing visualizers. You can participate in either or both as you see fit.
Imagine how the format of visualized outcomes, those silos lined up along the size of the prize yardstick, becomes a gateway for rapid learning about geology and mining for newcomers, and probably for a lot of old-timers including company management who will all be forced to engage in private economic geology as part of their company's wealth creation strategy. The Share Collective need not be a Death Star for life-style juniors who can always option a project from a more technically oriented prospect-generator.
Imagine the existing world which enables algo traders to sell stock short on a downtick, stock they never need to borrow provided they close out the short position by the end of the day, intercepting incoming risk capital attracted by positive exploration results, results that ought to lead to a higher stock price that sticks rather than just flutters up and then dies as the algo traders lean into the order book once new capital inflow has been exhausted, triggering a cascade of selling by despairing longs which helps the algos unwind their short position.
Imagine an alternative world where the crowd quickly quantifies the implications of the results, shares them for all to see, and establishes a fair value range for the new expected consensus outcome that enables everybody to see in the midst of trading volatility when the stock is over or under valued. In this world it is not only individual fundamental value investors who step into the market when it gets hammered down, but also the algo traders who are competing against each other and will no doubt have passive memberships that give them access to the galaxy of the Share Collective. The destructive one-sided nature of algo traders exploiting short selling on a down-tick in barely liquid markets where the companies are not allowed to quantify the potential size of the prize and the investing public has no idea how assess the size of prize will become less of a problem.
Imagine yourself as the head of an investment club which operates within a Slack workspace you created for free where everybody knows each other and collaborates in researching investment idea, an investment club specialized in the junior resource sector. Rather than politely ignoring each other's ideas you explore this Share Collective galaxy in which members of the investment club have become explorers, scouts reporting back on new frontiers which all club members can readily verify once pointed in the right direction. Imagine your club adopting one of these planets, seeding the stadium with key members who have amassed reputation through their independent roving of the Share Collective. Perhaps your club is rich enough to afford a broker style membership where multiple club members have access to a private outcome visualization workshop and can work on an outcome that makes sense to your club, one you cannot share because this is a private workshop membership, but which one of your club members can share through their independent account for the world to see. Imagine the fun you might all have discussing the stadium's response, figuring out who is friend or foe, plotting strategy to defend or advance your vision for that planet's future, all the time trading that company in the stock market. Imagine that you are not the only club, that there are countless others doing the same thing.
Imagine you live in a small town in the middle of nowhere but close to an exploration project that shows up in the Share Collective galaxy. The stadium is empty so when you join, despite being a nobody with zero reputation, you get the best seat in the house. You share an outcome which soon enough attracts others who have been busier than you which much to your annoyance bumps you off to a less prestigious seat. Never mind, because you have told your pals about this great play in your town's backyard and that smart explorer who is visualizing a big future. Your pals soon enough get a Share Collective membership and seat themselves in the stadium, maybe they are dumb enough to brag which one is he or she, but as far as they or anybody else is concerned you are just a distant observer who seems to be quite plugged in, something that is rather true because you know where the drillers hang out, you have chatted up the project managers when in town, and you are a student of body language, all of which gives you a knowledge edge that you manifest by posting comments which immediately alert the stadium audience that you, whoever you are, seems to know something, and are not just guessing. And although your seat in the stadium keeps fading away from the front row as much bigger shots start following the project, other spectators following the project have started to follow you because you seem to have an inside track. And while in the grand scheme of things you are a nobody, when somebody clicks the button to see who among the followers of the project are most followed by the project's followers, you show up at the top of the list. Every newcomer knows to ignore top ranked Ruler of the World, for in this solar system it is Rockwacker who has the answer to the question, "what's going on?"
Imagine the regulatory universe expanding the "existing shareholder exemption" which currently allows a non-accredited investor to buy up to $15,000 worth of private placement stock per company per 12 month period by eliminating the need to already own a share before the financing is announced. The deregulation of commissions has shifted the financial sector away from trading stocks toward fee based asset management where the less interaction with a client the better. Not that this matters because the online availability of information leaves the broker not much wiser than the client about the fundamentals and snuffs out room for rumors, the traditional reason clients traded resource juniors but which are not pretty absent. The risk of litigation has spawned a suitability rule where brokers are forbidden to accept even unsolicited orders from clients aged 55 or older, forcing them to trade resource juniors through online discount brokers and generate their ideas from other sources. The full service broker is irrelevant to retail investors and will never play a meaningful role again. As inhabitants of the Share Collective young and old investors who are not accredited will have a better understanding of the risks and rewards of an exploration play than any prior generation. It should be possible for non-accredited investors to freely give their capital directly to a resource junior, which, if facilitated by a more reasonable version of the "existing shareholder exemption", which places an undue verification burden on the company accepting the private placement funds, would greatly expand the capital base available to fund the resource juniors. Enormous amounts of risk capital for the resource juniors are still raised, but it tends to go into a small number of juniors at the expense of the overall health of the resource junior eco-system.
Imagine the junior resource sector as a forum where you can gamble on longer term fundamental outcomes as well as shorter term changes in market perceptions, a forum where one individual can provide the nudge for massive changes, or evolve to become a super-star, a forum which allows for contextualized discussion about a project, and which brings entertainment back to this sector. When this is built new and lost audiences will come back to the junior resource sector which will finally have in place the machinery to allow global audiences to gamble on exploration outcomes.