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Investment Due Diligence Process

To protect the innocent, I will not use company names in this edition of High Heel Boss. I will, however, review the criteria that I used to decide whether to invest in an alternative asset.

The first asset class is a gold mine. I know this may sound super crazy, but as a reader of my blog, you know, my life is crazy. And if you think I knew a darn thing about goldmines then you are crazy. This investment came about from an investor at Ignite Funding asking me if I would consider joining a select few people (10 to be exact) to invest $100,000 each. At first, I thought she was crazy, but the female intuition kicked in, and I got in a car with two strangers and drove to the location of the mine. Now that is some crazy shit right there, and I would not recommend this, as this is how you end up on Dateline.

So here is Carrie Cook, the geologist, and an investor who drove for hours to get to the location. The whole way there, I got a crash course in geological reports and assessments for signs of mineralization, historical production data, geological surveys, and current exploration results.

Once I got there, the rest of the team was there in a rundown single-wide trailer as if they had rolled out the red carpet. I was not expecting that, and at this point, I figured there were too many witnesses to cut me up and bury me in the desert. Just for the record, I was encouraged that they bought the oldest rundown single-wide trailer, as I knew my investment would not be spent on frivolous overhead. Take note of the surroundings when you visit an investment location as it tells a story.

The first thing we did was a site visit to the mine. It had been dormant for about 80 years, and as we walked around, I could see veins of gold on the surface. This was a good sign. They then asked if I wanted to go down the stulm, which is a passage to an underground mine that miners used for access to drainage, ventilation, and extracting minerals. This is where I draw the line.

Back at the trailer, we discussed regulatory compliance. As you can imagine, the permits and licenses from regulatory authorities for a goldmine are no walk in the park. As of this meeting, they had not received the environmental approval, and I took note. We will get back to this at the end.

We then discussed financial analysis and reviewed the current financial statements of the mining company. We discussed future expenses, profitability assumptions, and cash flow. I learned about production per ounce of gold compared to the prevailing market prices. I also learned that a gold mine does not only produce gold. It produces many other minerals, many of which I cannot even pronounce.

I had the opportunity to meet the entire management team and assess their experience and track record to evaluate their ability to execute the business plan.

Four hours into this evaluation, I was ready to discuss risks. With every investment, there is the risk of losing your entire investment, so evaluating the risks is just as important as the investment and the people behind it. The biggest risk, as mentioned earlier, was whether they would ever get the environmental approval to move forward, as I was keeping in mind that they had been in the process of obtaining this for a year and a half. Don’t let all the good stuff overshadow the potential issues. 

While in the car for the drive back, I was thinking about how I could seek professional advice from experts outside of the inner circle I was just sucked into for four hours trying to keep in mind the security factors of mine. I asked for references from another geologist and if they would consider sharing their findings and they agreed. Within a few weeks, I spoke with another geologist, and upon confirmation of the report and the environmental regulations being met, I invested.

To what lengths would you go to do your due diligence before making an investment?

Most of my investments involve a visit to the investment firm, a tour of the investment site, and a one-on-one conversation with the management team. If you are unwilling or find it unnecessary, then you probably should not be making large financial investment decisions.

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