Investing in Groups vs. Standalone Companies





Too many CEOs are convinced that they are the Rock of Gibraltar. The sun rises because they wake up, their projects are so good that no one needs to market them, and anyone who doesn’t understand what they’re doing is an idiot at best and an active conspirator to steal the company at worst.

Many of these CEOs are excellent exploration geologists. Their confidence and ability result in extraordinary finds and world-class deposits. However, when it is time to manage the investor relations, the TSX, the books, and the interpersonal relationships that drive the mining world, they fail to place the right people around them who know how to handle these things.


Most junior companies are comprised of two or three people, a pile of rocks, and a check book, making it very difficult to support in-house investor relations, financial controls, and secretarial services. The only way to do so on a budget is to share resources and band together as either a confederation or a tribe.

Independent companies form confederations. They roll their own corporate structure, picking and choosing which vendors to buy services from. What they lack is common vision and someone who can dial for dollars ranging from $1 million to $100 million.

A group is a tribe, where there is usually a promoter at the top who controls and directs multiple companies down the path of development. This person has a strong ability to raise money at the institutional and retails levels, a history of both successful and failed projects, and an ego. No good promoter thinks of himself as a minor star in the greater universe; we have not met a down-to-earth promoter who is good at his job.

We have been involved in both standalone projects and group projects, and our feeling is if you have a significant discovery, the group will outperform the standalone company. The group will also be rational about driving capital to good projects and doing the necessary work to abandon weak projects.

One of the best conversations we have had was with a director of a major pharmaceutical company who managed new drug development. We made the comment that it was impressive that they were willing to spend $800 million to develop a new drug. He made the counterpoint that what was even more impressive was their ability to quickly kill dead ends, as the net sum of the drugs that fail cost substantially more than the drugs that succeed.

The head of the tribe has an obligation to keep the tribe healthy. Standalone companies often hold on to projects long past the use-by date, wasting investor money. A good standalone CEO who can see things no one else can see is worth his weight in diamonds and caviar. However, good CEOs quickly form new groups and become heads of tribes.


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