12 important questions to ask from a resources company management

Summary

  • The energy and resource sector is highly speculative, and one needs to be on the toe to make a profit from it.
  • Investors should listen to the interviews of the management people from their target companies to get a good insight into the companies and their businesses.
  • Provided with an opportunity to ask questions from the management, one should prepare a set of questions that proves to be informative and answers all doubts regarding the company.

Interviewing a resources company management is crucial for a resource investor’s due diligence process. By interviewing the mining company’s management, the investors will be able to obtain insights and information not readily available on a company’s website. A series of good questions will lead to a better feel for whether or not a particular company might make a good investment.

  1. What is the current liquidation value of your company versus the market capitalisation?

This question will certainly help the investors to get access to the 'intrinsic value' of the company. However, energy and resources is a highly speculative business, and investors need to have a keen eye on the company's cash flow that is to on discounted rates.

An investor should ask this question that if the company is sold today, what will be the street price? What value is market putting on the company?

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  1. What about your esteemed management and directors? Tell us briefly their past success in mining and markets.

For a mining and resource company, core competency in the designated field is really important. Gold ore is present in the earth's crust for millions of years. Finding a good reserve with good economics for extraction will help you in making money out of it. A mine is not found, it's made! A great team of technicians and engineers under expert guidance can create magic even with a marginal field.

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  1. What are the company’s goals and strategies to reach those goals? 

Well, each company sets its short- to long-term goals. For a resource company, a project may last over 50 years or even more (some may end with in few years too) depending on the reserve it holds. Some of the oil fields in Saudi Arabia are producing since the World War 2 era.

A mining project involves various stages starting from exploration, which may last over a decade. Then comes the appraisal stage, followed by the development stage. After these phases, production will commence. Then also, throughout the life of a mine, development work like adding more reserves to the existing reserve would also take place. From an investor’s point of view, if someone is putting their money in a company for the long run, they must know the strategy the company is developing to extract returns from the projects.

 

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  1. Apart from the Board, is there any strategic investor involved in the company?

The question is relevant when a junior company is started with some funds allocated by an individual or a group of individuals. It will help investors know which part of profits these people are extracting if the company is profitable.

 

  1. How is that particular deal going to make more money for the investors?

This question is relevant when the company is doing some M&A activities or planning to invest in a new project or doing some Farm-in or Farm-out agreement. The investors are interested in the money part and should ask how it will affect the company (share prices).

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  1. What can go wrong from here in the venture?

Well, this is a difficult question to answer for any management. They cannot simply pinpoint their weakness in the open. But they can throw some light on macroeconomic factors, opportunities and threats related to the industry and like a smart chap, they can also tell you their plus points in disguise of weaknesses.

In the current scenario, like the COVID-19 situation, any heads up from the head of the organisation could help you to improve timing of your strategy for making an entry to the stock.

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  1. What do you think is the biggest opportunity the sector presents?

This is a question every CEO will love to respond to. But it is important to know their point of view, which we may be missing. Sometimes investors do not have access to the kind of information that can predict optimum demand and supply of the sector.

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  1. What is your view on the implementation of the latest technology like IOT and AI in the energy and resources industry?

This will help to understand where the company stands on utilising the latest technologies in its processes? How much of the understanding does the management have on implementing technologies like Blockchain, IOT, AI and other data analytics? This is a general question that can be moulded according to the company and its operations. 

 

  1. How do you evaluate your company with respect to your peers when it comes to the implementation of strategies?

This one is a favourite of mine. The CEO or MD of the company will tell you points which place them in bright colours. For me, this question will serve two purposes. First, I will get to know how the company is planning to implement its strategies to generate revenue and secondly, I can get to know the name of some of the peer companies.

As an investor, I can start my research on peers.

It is a competitive age; the management must have kept vigil on their peers. You need to frame the question in such a manner that the interviewee gives some names at least.

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  1. Is your Company well placed with funds or investments required for carrying out the operations?

It’s a generic one. Investors should know how well the company is funded. Does it have enough cash in hands to carry out its operation smoothly

  1. Is your Company looking for Placements or any other instrument for raising funds in near terms?

Raising funds for operations or M&A activities are normal in the corporate world. The instrument through which a company is planning to raise the fund is a vital one. Suppose a company plans to raise funds through placements. This will lead to equity dilution, which may result in a dip in the share prices. As an investor, I will wait until those shares in placements come out in the market and enter at lower levels.

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  1. How soon can we expect returns on the investment?

This question arises mostly for the junior mining companies who are in the exploration or early production stage. Investors put their money in junior miners as their share price is really low, and they think this will be the new multibagger for the market.

Whatever mineral they are into or whatever the volume of reserves they have, if they cannot produce it economically with considerable margins, then all efforts will go in vain.

So, it is important to ask when will the production commence?

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