Expectation setting leading up to drilling programs:

So you are invested in a junior exploration company because you like where its projects are located and think that they have a good chance of making a new discovery or emulating the success of a neighbouring company.

That company has just started drilling, it's time to set some expectations for that drilling program so that you can judge the results objectively.

Often new investors who don’t set expectations can post-rationalise results based on the market reaction, rather than independently decide if the results are good or bad.

If you find yourself asking “Were those results any good?” after each drilling campaign, then this is the perfect time to improve your mining investment edge by setting expectations BEFORE a drilling campaign.

We have been investing in micro-cap exploration companies for over 20 years and have seen the good and the bad when it comes to drilling programs.

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At the beginning we would go into every drilling program expecting our investments to make the world's biggest, highest grade discovery.

Very quickly we realised that this did not happen, and the only way to independently evaluate the merits of a discovery was to set the expectation BEFORE the drilling program commences, as these programs can often have binary outcomes.

Below is our process to do this laid out in a step by step guide.

First, we determine the aim of the drilling program:

This is important because it's impossible to set up expectations without determining what the company is actually going to look for.

Things to consider here are:

1. Is it the company's maiden drilling program over the project?
2. Is the company drilling blind or targeting EM/Geochemical anomalies?
3. What type of drilling rigs are being used?
4. Is it an infill drilling program (drilling into existing holes) or is the company doing riskier extensional drilling?

There are many other things to consider but the main thing we like to do here is try to understand what the company is trying to achieve before we can start setting our own goals.

If the company is drilling a project for the first time, it is more likely trying to build its understanding/geological knowledge of the project area, in this scenario any mineralisation that warrants follow up drilling would mean success.

If it is doing infill drilling it is more likely chasing a known mineralised area and so we can know to expect better results.

If the company has run a geophysical survey and found EM targets to drill, results with no mineralisation or low grades would be more likely deemed as unsuccessful.

Let’s use our junior exploration company BPM Minerals (ASX:BPM) as an example, who is drilling for lead-zinc at its Hawkins prospect.

The company is doing a mixture of aircore and RC drilling, it is the first time BPM will be drilling the project and it's also the first time a company has ever done lead-zinc targeted drilling.

The company has also said it is mostly drilling to map out the geology and get a better understanding of the geology in the area before RC rigs will be deployed to drill interesting targets.

What we can gather from this information is the following:

1. It is the first time the company is drilling here.
2. There are no geophysical/geochemical anomalies
3. The aim of the program is to build an understanding of the geology in the area
4. The drilling program is mostly aircore drilling (lowest cost drilling used mostly in target generation works - you can read more about the different types of drilling)

From all of this information we can clearly see that the program can be classified as “first pass” and mostly reconnaissance work.

Second, what would be deemed a successful results for this drilling program:

Having established the type of drilling program the company is doing, we try to establish what a successful outcome from this program would look like.

Going back to our BPM example.

We would in this scenario consider a successful program one that returns lead-zinc mineralisation that warrants follow up drilling and a large footprint of lead-zinc mineralisation over the areas drilled.

This would validate the theory that there may potentially be a larger discover deep in the grounds of the Hawkins project.

The third and final step is to put these into three easy to understand scenarios:

Having established what success looks like, we like to take a step back and set our expectations in three different scenarios that all investors are likely familiar with.

1. The bullish case result (best case result - often something surprising happens)
2. The base case result (good result - company meets its objectives for the program)
3. The bearish case result (poor result - no mineralisation is found and the company has to go back to the drawing board.

After setting these expectations we are then ready to wait and receive the results from the drilling program.

Once the results come out instead of acting irrationally and selling or buying more shares based on what the market is doing. We go back and check to see where our investments results fit in the list of expectations we have set and then make a decision accordingly.

Going back to the BPM drilling program, we would set the following scenarios:

1. Bullish result = Company finds enough information to warrant follow up drilling with some unexpected shallow, high grade lead-zinc mineralisation.
2. Base result = Company finds enough information to warrant follow up drilling.
3. Bearish result = Company finds nothing and has to go back to the drawing board.

Why is setting clear expectations important?

We think that without expectations set in advance of binary results like the results received from a drilling program, we would be exposing ourselves to acting irrationally or with emotion rather than objectively and based on the facts of the results.

New investors often react to market prices or online chatter to evaluate a result, however by setting the expectations beforehand, it helps us focus on the result and make objective decisions, without the noise.