Recently reread a book called Fool’s Gold by Brian Hutchinson, Alfred Knopf, Toronto, 1998 which is about Bre-X. The company Bre-X was a gold mining promoter whose stock went to over $100 a share before crashing down because there was no commercially mineable gold. Along the way, the saga exposed many different layers of human greed and gullibility.

In the case of Bre-X as well as many other cases of fool’s gold there is a reliance upon experts. We all rely on experts, the world is too complicated not to, however if you are going to allocate a large amount of your resources, the rule is you have to at least know the process of how the industry works in. For example, in the case of Bre-X, the company was in the mining business, but most of its life was spent in buying claims near proven deposits and trying to raise money to drill a few holes hoping the mineralization of the earth was in its claims. All those actions are high risk, high cost and under normal circumstances do not translate into a commercially feasible mines. The reason why the company existed was to issue shares at pennies and sell them based on hope – the possibility this time it is different and ideally the shares are worth more than a dollar or two. Then it is on to the next hot area of mining. In the case of resource extraction the above is the normal and accepted method of attracting funds for mining development because the only method to know what is in the ground, is to drill. Given the nature of the industry – experts are used to look for the best claims; to drill; to look at the drill cores and make estimates given the sample size what the level of mineralization under the ground should be. There is a number of steps in the process which rely on experts and as the courts have found – there will be experts on both sides on the argument.

Linking to dividend paying stocks, while the above process is interesting and can be very exciting, it does not pay consistent dividends, unless you focus on the large mining companies. To focus on small mining companies is to speculate on price appreciation and you will need to become familiar with whatever exchange you are using insider reports and who is buying and selling shares; also which companies are issuing even more shares because they actually believe the hype they have released in the form of press releases actually matches reality.

There are more questions than answers, till the next time – to raising questions.