A friend of the blog who is an up-and-coming resource magnate sent us a copy of The Big Score, which is about Robert Friedland and the discovery of the gigantic Voisey's Bay nickel deposit in Labrador. (It's the same deposit in which Altius Minerals holds a royalty interest.)
Robert Friedland was a mining stock promoter and is known as the guy who taught Steve Jobs the "reality distortion field". (They met at Reed College when Jobs worked for a time on Friedland's commune / Apple farm.)
Here is the recipe for making money the way Friedland did in junior resources:
- Get a huge potential mineral resource practically for free [pdf] from the Canadian government, by staking claims.
- Trade the claims for most of the stock in a shell company traded on a Canadian exchange.
- Raise money for the shell from resource investors, at a price far higher than the nominal fees you paid the Canadian government for the claims.
- Use some of the money to do your mineral exploration work, which is required to keep your claims active. This plan assumes that you find a huge mineral resource at this point, like the nickel that Friedland's prospectors found, but that is not necessarily required.
- Now that you've found the huge resource, raise more money at a far higher valuation. One good idea would be to sell stock to a major mining company so that it is invested (literally and psychologically). Also be sure to stake a vast swath of claims around your discovery; if you don't, another mining promoter will, which will dilute your "brand" so to speak.
- Continue exploration activity that will help justify a higher resource estimate and higher valuation. Start thinking about roping in a second major mining company by selling them stock (or signing a joint venture or mineral marketing deal) so that they are invested too.
- Now it is time for the auction! If you chose the major mining companies well, they are short on reserves and management will feel they can't afford to lose the auction. (But if that's the case, they probably found you.)
- Act crazy in the negotiations, maybe like Khrushchev ("Мы вас похороним!"). That way the buyers will do some of the negotiation for you by thinking on their own, "If we ask for that, we'll get the shoe!".
- Read Barbarians at the Gate for how to conduct the auction. They're never over until rounds and rounds of bidding. If the mineral resource is big enough and the companies are desperate enough, the company you sell to should go bankrupt (or at least share price collapse) within a few years after "winning" the auction.
- If you took stock in the acquirer for tax reasons, be careful holding it for too long. Do you really want to own stock in a company that "wins" auctions for commodities in the ground? Remember, if they were smart they would be selling the stock they bought in you in step five, not buying more, so that they could maximize shareholder equity, not market share!