Seven years ago, I went to see a gold play in the far east of the Democratic Republic of the Congo. It was near Lake Kivu, on the border with Rwanda. I was well aware that this area has seen some of the worst bloodshed in African history. That’s due in part to its richness in gold. But there hadn’t been any active fighting for some years, and the UN had peacekeepers on the ground. So off I went.
The mine was already pouring gold, but the company had exploration projects nearby that were hoped to add a huge amount of value for investors. Instead, the company went bankrupt.
But that’s not the story I want to tell. The key takeaway had nothing to do with the company. It was meeting an analyst from a major financial institution. To this day, I think of him as Spreadsheet Guy.
When we visited the operating mine, Spreadsheet Guy walked around with a laptop computer, asking a gazillion questions about every part of the plant. Every number and parameter he got, he entered into a spreadsheet on the laptop. He was building a model of the operation. The goal was to predict operating and financial results—and hence share prices—given any production-related news the company might publish in the future.
I was impressed.
Then we went to see the exploration projects the big upside was supposed to hinge upon. Spreadsheet Guy brought his laptop. We were standing near some sort of planar feature in the ground—I don’t remember if it was a vein, a shear zone, or something else—and Spreadsheet Guy was again spraying questions on full-auto.
But this was a new discovery. It had maybe half a dozen holes in it. Nobody really knew how far it went along surface or at depth. It was impossible to say what the average grade or thickness might be. And yet, Spreadsheet Guy wasn’t just asking how many millions of ounces the possible deposit might have. He was asking what the strip ratio of an imaginary mine might be. He wanted to know how much reagent hypothetical flotation cells might use. Most of his questions were impossible to answer meaningfully.
I was not impressed.
Spreadsheet Guy was building a model of a mine predicated on a deposit that didn’t even exist. The result would be a lot of math supporting a projection of value to be added to the company’s share price—if Spreadsheet Guy’s 27 assumptions held, or his 57 guesses, or his 97 estimates…
In other words, I was witnessing the making of bulshytt.
And this was to be particularly dangerous bulshytt. It would be issued by a prestigious institution. It would be clad in formal language. It would be backed by powerful mathematical tools. And, most dangerous of all, it would be produced by an expert who’d gone to the heart of Africa to get the facts in person.
Did I mention that the miner eventually went bankrupt?
If the fate of our hard-earned cash depends entirely on glorified guesses, odds are that we can go ahead and kiss it goodbye.
To be fair, I think I did recommend the stock myself. I liked the “free” exploration potential on top of what was supposed to be profitable production. Maybe I was taken in by some of the company’s own bulshytt. If memory serves, we didn’t stay in the play long, as things didn’t live up to expectations.
But I feel for the many people who I’m sure read some very exciting and impressive copy about the company—bulshytt that persuaded them to hold on to the stock until it took their money to money heaven.
I bring this up because, it is my sincere hope to avoid any and all bulshytt in my writing. I get carried away by my love of geology sometimes, and I do hope to entertain, but ideally, my writing should be all about the facts, with no hype.
I don’t want to talk anyone into buying anything. And I certainly don’t want to give the impression that some speculation is better or more certain than it is. The facts should speak for themselves. When I guess (forecast, project, estimate, etc.), I’ll do my best to make it clear that I’m guessing.
I don’t want to be Spreadsheet Guy, publishing phone-book sized reports full of glorified guesses.
I want to be a reliable source of valuable information.
That, I believe, is the only solid basis for a lasting business relationship between us—and that’s important to me.
Sincerely,
P.S. In last Saturday’s live session, I started out by defining—and then doing my best to avoid—bulshytt. If you didn’t catch the show,I do recommend watching at least the first few minutes. It explains a lot about what I do, why I do it, and how I do it.
