Track Records Neglected When Needed Most

Investors must pay for on-the-job training as start-up mining companies confront unfamiliar metallurgical problems. ’Track record’ is cited by fund managers as one of the most important criteria in assessing where to invest in the mining industry. Paradoxically, this is one of the first investment criteria to be jettisoned when market themes begin to gather momentum. The recent exuberance over new technology metals like lithium, tantalum, graphite and cobalt offer evidence of fund manager negligence likely to result in poor investment outcomes. Remarkably few fund managers are asking “have you ever successfully mined or processed the ore containing these metals”. The overwhelming number of honest answers to this question would be “no”. If 95% of historical production has occurred in China, the chance of finding appropriately skilled engineers in Western Australia, for example, is low. Fund managers are taking risks in accepting irrelevant track records as good enough. Orocobre, Valence Industries and Pilbara Minerals have all been tripped up by their inexperience with lithium, graphite and tantalum, respectively. Only two out of the three have been lucky enough to survive.