How to evaluate “nearology” investments
Published 09-MAR-2022 12:15 P.M.
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.
Over the years we have established our internal “nearology scale” with four clearly defined tiers of nearology, which we will explain in detail below.
- "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.
- “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.
- “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.
- “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.
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
General Information Only
S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.
This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.