Invesco Canada blog

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Norman MacDonald | September 20, 2013

Searching for investment gold off the beaten path

Of all the hands-on research I’ve done in my 20-year investment career, riding a donkey up a mountain in South America to view a company’s assets wasn’t something I’d anticipated.

Yet there I was one afternoon a few months ago, quite literally off the beaten path, with the goal of confirming my beliefs about an investment opportunity. The research trip required me to visit a gold mine in the depths of the Colombian jungle. While I knew the site was remote and only accessible by helicopter, no one told me there was a second leg to the journey.

I was on my way to view the assets in a new access tunnel located on a mountain. When our ride pulled up, I realized I could either stay where I was, or hop aboard a donkey in 35° C heat and see the assets with my own eyes.

I’m not one to shy away from a challenging site visit – no matter how obscure – especially when I’m in due diligence mode on prospective companies. This is especially important because most of the businesses I own or am looking to own have assets such as mines or oil fields often worlds away from the comforts of Toronto or New York.  So, naturally, I made my way on top of the poor old donkey’s saddle for a white-knuckled, one-hour ascend to the top.

Was the ride worth it? Absolutely. The logistical challenge of accessing a high-grade ore zone like this one was going to take time and patience. The market was a little ahead of itself in terms of anticipating the pace of development that would take place. The other insight I gained is that the company would probably need to raise capital (equity) in the coming 6 to 12 months in order to continue the pace of their plans to get the mine from a permitted phase to actually begin construction.

The risk and reward for investing in companies developing assets in natural resources sector can’t be evaluated accurately through meetings or by reading reports. This is because new mineral deposits and new hydrocarbon fields are often found in politically turbulent or isolated parts of the world.

Just as the mining company faces obstacles to meet the needs of the market, finding investments opportunities in companies with a competitive advantage means overcoming challenges. Climbing on a donkey and examining every nook and cranny of a business can make all the difference, especially when most investors aren’t taking such a close look.

Norm MacDonald September 20

 

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