How to evaluate “nearology” investments
Published 09-MAR-2022 12:15 P.M.
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2 minute read
When evaluating an exploration investment “nearology” will often form part of the investment thesis.
Nearology is the idea that the exploration ground (where a company is looking for minerals) is in close proximity to a discovery made by another company.
Hence the term ‘nearology’.
However, not all nearology is equal, and just being geographically close by does not necessarily increase the chances of a discovery.
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Over the years we have established our internal “nearology scale” with four clearly defined tiers of nearology, which we will explain in detail below.
1. "Entry level” nearology - geographically close - almost irrelevant
If two projects are geographically close but have different geology - it's almost irrelevant.
These companies will often claim “we are 40km away from the world’s biggest deposit therefore our grounds should also hold a world-class deposit”.
This rarely works out.
2. “Better” nearology - geographically close AND same geological structures
This is when two projects have the same geological structures below the ground, but no supporting data - or drilling that has de-risked it to date.
This is a good starting point for an explorer, with the grounds most likely being unexplored.
There is still a lot of risk with plays like this but the potential upside is high.
Generally, we manage to pick these types of explorers up at fairly low enterprise values.
3. “Even Better” nearology - geographically close AND same geological structures AND supporting exploration work
This is when two projects have the same geology and structures WITH supporting drilling data/geochemistry and/or geophysics.
With these, we like to see either some drill intercepts showing something is where the company thinks it is, or rock chips in the area pointing at something, or geophysics showing massive EM targets that need to be drilled.
4. “Best” nearology - geographically close AND same geological structures AND supporting exploration work AND confirmation same deposit extends
This is when there is an extension of the same deposit.
This is fairly straightforward, sometimes deposits extend out from the imaginary lines set by “tenements” and straight into grounds held by other companies.
These situations are fairly easy to spot and are the best type of nearology plays.
In Summary
Entry level nearology: The exploration ground is in close proximity to a known deposit
Better nearology: The exploration ground is sitting on similar geological structures to the known deposit
Even better nearology: The exploration ground has supporting exploration work to indicate mineralisation exists
Best nearology: The known deposit extends into exploration ground
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