Module 8: Red Flags, Green Flags & Sneaky Tactics

Why this matters

Junior mining is the most retail-hostile sector on the ASX. The structures are complex, the disclosure is technical, the time horizons are long, and the promoters are professional. Most of what's done is technically legal. Some of it is genuinely fraudulent.

Your job is to learn the patterns. Once you can spot them, you can quickly disqualify 80% of the junior universe and concentrate work on the 20% worth analysing.

RED FLAGS

1. Nearology plays

A junior pegs ground next to a major's discovery and runs hard on "in the same belt as [tier-1 deposit]" marketing. The geology may or may not be the same — usually it isn't, because the major's geology team had pick of the best ground.

Test: ask whether the junior's specific tenement has been historically explored, and what previous explorers found. If it's been drilled before with poor results, nearology is a marketing wrapper around a known failure.

2. Shell recycling

Companies that have been listed for 15+ years, changed names 3+ times, pivoted from gold to lithium to uranium to whatever's hot. Same management, same shell, new story.

Test: look at the company history on ASX. Frequent name/ticker changes are a red flag. The shell was kept alive specifically because being already-listed is valuable for promoters, not because the underlying business has continuity.

3. Paid promotion / sponsored research

A large portion of "research" coverage on small-cap miners is paid for by the company. Some research houses disclose this clearly; many bury it in fine print or don't disclose at all.

Test: any "Buy" recommendation with a 12-month price target 3–5x the current SP, on a Stage 1–3 company with no revenue, is almost certainly paid coverage. Read the disclosures carefully. Legitimate broker initiations from tier-1 firms (Macquarie, UBS, Morgans, Bell Potter, Canaccord, Euroz Hartleys) carry more weight, though they have their own conflicts.

4. Director and CFO turnover

Departures cluster before bad news. CFO departures especially — the CFO sees the books before anyone else.

Test: check announcements for the last 24 months. Multiple senior departures in a 6-month window is a flag, regardless of the explanation given.

The company acquires a tenement from an entity associated with a director, often for shares + cash. The vendor is technically a separate entity but the beneficial owner is a director or their associate.

Test: check the Annexure to the deal in the announcement. If the vendor is a private company associated with a director, the director has effectively transferred their ground to the public company at a price they set. Sometimes legitimate; often grossly overpriced.

6. Capital raise immediately after positive announcement

Pattern: positive drill results / resource update / study results released, SP rallies 30–80% on the day, trading halt the next day, capital raise announced at small discount to (newly elevated) market.

Test: time between positive news and trading halt. If less than 5 trading days, the capital raise was already prepared and the news was held back until pricing was favourable. Legal, common, but signals capital management designed for the company, not shareholders.

7. "Up to" headline grades

"Up to 35 g/t Au returned from drilling" — covered in Module 4, but worth re-flagging here. Always means a single peak assay, not a weighted intercept.

8. Reliance on historical (non-JORC) estimates

"Historical resource of 1.5 Moz" featured prominently in investor presentations. Not JORC-compliant, often based on old drilling at wide spacing, sometimes pre-dating modern assay methods.

9. Going concern emphasis in auditor's report

Buried in the annual report. The auditor flags "material uncertainty regarding the company's ability to continue as a going concern" — i.e., they may run out of money.

Test: read the audit report (page 1 of the financial statements). Any going concern emphasis is a serious flag.

10. Auditor changes

Especially mid-year. Auditors don't usually walk away from clients without reason.

11. ASX queries / speeding tickets

ASX issues "please explain" notices when SP or volume moves unusually. Frequent queries signal either market manipulation, leaks, or careless disclosure.

Test: company announcements page on ASX. Search for "ASX query", "Aware Letter", "Price and Volume Query".

12. Hidden royalty stack

The project has multiple royalties already encumbering it:

Government royalty (e.g., 2.5% in WA gold)
Vendor royalty from previous owner (often 1–3% NSR)
Streaming agreement (effectively a royalty on a portion of production)
Native title benefits / state agreement royalties

A 10% combined royalty burden destroys margin. Always check the project's royalty stack in the prospectus or annual report notes.

13. Unexplained cash burn

Quarterly cash burn vastly exceeds disclosed activity. "Exploration spend" of $2m for a quarter where one drill rig was on site for 6 weeks is suspicious. Salaries and director fees in juniors should be modest in early stages.

Test: divide quarterly cash burn by tangible activities (drill metres, study work, etc.). Compare to peers at similar stage.

14. Promoter language in announcements

"World-class", "company-making", "transformational", "tier-1 potential", "elephant in the room" — language that belongs in marketing decks, not technical announcements. Legitimate technical announcements describe what was found in measured terms.

15. Selective benchmarking

Comparing your project to globally famous deposits with very different geology, jurisdiction, or scale. Always read which deposits are being used as comparators and check whether the geology is genuinely analogous.

16. Backdated or revised guidance

Production guidance revised down repeatedly. Cost guidance revised up. Each revision presented as "due to one-off factors" or "ramp-up issues." After three revisions, the issues aren't one-off — they're structural.

17. Excessive director remuneration relative to MC

Directors paid $400k+ each in a $20m MC company that hasn't drilled a hole in 12 months. The company exists to pay the directors.

Test: annual report's remuneration report. Total board + KMP comp as % of cash position and as % of MC. Above 5% of MC for a non-producer is excessive.

18. Foreign jurisdiction asset with onshore listing only

The asset is in DRC, Sudan, Eritrea, etc. — but the company is ASX-listed because that's where retail capital is easiest. Sovereign risk, expropriation risk, and security risks may not be priced in.

GREEN FLAGS

Limited free float, founder/seed shares locked up, low daily turnover. Limits downside in soft markets and amplifies upside on positive news.

2. Director on-market buying

Buying from market with their own cash, not via placement participation. Required disclosure within 5 business days. The clearest aligned-management signal there is.

3. Strong technical board

Board includes credible geologists, mining engineers, or executives with track records of building mines. Not just lawyers, accountants, and capital markets people. Look for executives who've been through full Stage 1→10 cycles before.

4. Conservative assumptions in studies

Commodity prices at or below current spot, met recoveries in line with locked-cycle pilot tests, contingency 15%+ on capex, ramp profile of 12+ months. (See Module 5.)

5. Strategic / cornerstone investor at premium

A major mining company, sovereign wealth fund, or specialist resources fund taking 5–15% at a premium to market. Real DD has been done.

6. Binding offtake with credible counterparty

A binding (not MOU) offtake with a tier-1 buyer (LG Chem, Tesla, BHP, Glencore, Trafigura, etc.) at market or premium terms. Validates product specs and provides forward sales visibility.

7. Royalty / streaming financing instead of equity at FID

Non-dilutive project finance via streamers (Wheaton, Franco-Nevada, Royal Gold, OMF, Triple Flag, etc.) signals tier-1 investor confidence in the project economics and asset quality.

8. Disciplined capital raises tied to milestones

Capital raised only when needed, sized to specific work programs, with clear use-of-funds disclosed. No vague "general working capital" components.

9. Resource and reserve growth year-over-year

The annual reserve statement shows consistent growth in measured/indicated tonnes and contained metal, beyond what's been mined. Real exploration value being added.

10. Stable senior management

Same MD, CFO, and Exploration Manager in place for 3+ years through the development cycle. Continuity of strategy.

11. No-drama announcement style

Technical announcements written by geologists, not marketers. Specific data, sober tone, full JORC Table 1 included.

12. Independent technical reports

Resource estimates and study work signed off by reputable independent consultants (SRK, AMC, Mining Plus, Snowden, CSA Global, Lycopodium, GR Engineering, Wood, etc.). Not by the company's in-house CP only.

SNEAKY TACTICS — full taxonomy

1. The "transformational acquisition" pivot

Company in declining sector announces "transformational" acquisition into a hot sector (lithium 2022, uranium 2024, gold 2025). New tickers, new logos, new website — same management, new dilution. The acquired asset is usually low-quality (the good ones don't need rescue listings).

2. Reverse takeover (RTO) shell games

Live ASX shells are sold to vendors who reverse-list their private asset into them. RTOs are sometimes legitimate (faster than IPO) but often involve poor-quality assets that couldn't pass IPO due diligence.

3. The 7.1A overhang

Companies seek 7.1A approval at AGM "for flexibility" then quietly use it months later. The capacity itself signals dilution coming.

4. Capital raise straddled across positive announcements

Positive announcement → SP runs → trading halt → placement at 10% discount to elevated SP → SPP at same price for retail → company captures higher pricing on the dilution. Standard playbook.

5. Selective announcement timing

Bad news released on Friday afternoon, on a major news day, or after market close. Good news released first thing in the morning, sometimes simultaneous with an investor roadshow.

6. Buried material content in quarterlies

Material new information disclosed within a 30-page quarterly rather than as a standalone announcement. Less likely to attract market attention or regulatory scrutiny than a dedicated release.

7. The "non-binding MOU"

Headlined as an offtake or partnership announcement. Buried in body: "non-binding", "subject to negotiation", "conditional on completion of feasibility study, financing, and regulatory approvals". Often nothing comes of it.

8. Performance rights vesting on share price targets

Performance rights that vest when SP reaches specified targets. Aligns insiders with hitting short-term SP marks, which can be done via promotion rather than fundamental delivery.

9. Resource update with shifted parameters

Resource grows year-over-year because the cut-off was lowered, not because new mineralisation was found. Read the cut-off footnote and compare year-over-year.

10. "Strategic review" language

"The Company is undertaking a strategic review of its asset portfolio." Often code for "we're trying to sell this and haven't found a buyer." Sometimes preludes a major impairment.

11. Internal name changes hiding history

The corporate ASX entity history page often shows prior names. Sometimes the company was a failed lithium play under one name in 2018, a failed cannabis play under another name in 2020, and now a uranium play in 2024. Same shell.

12. "Spin-out" of unwanted asset

Parent company spins off a non-core asset to existing shareholders as a separate listing. Often the spin-out has poor economics — the parent kept the good stuff.

Practical disqualification checklist

Before doing any deeper work on a junior, run these 10 quick checks. If 3+ red flags appear, move on.

☐ Has the company changed names / pivoted commodities in the last 5 years?
☐ Are there ASX queries / speeding tickets in the last 12 months?
☐ Going concern emphasis in latest auditor's report?
☐ Director / CFO turnover in the last 12 months?
☐ Headline grades reported as "up to" rather than weighted intercepts?
☐ Reliance on historical (non-JORC) estimates in marketing?
☐ Any related-party asset transactions in the last 24 months?
☐ Capital raise within 5 trading days of major positive announcement (recurring pattern)?
☐ Director remuneration exceeds 5% of MC for a non-producer?
☐ Any non-binding MOUs being marketed as concrete commitments?

What I'm uncertain about

ASIC and ASX enforcement intensity varies over time. Some periods see active crackdowns on misleading resource statements; others see lighter touch. Check ASIC media releases for recent examples if you're researching a borderline case.
Specific consultant reputations shift over time. The list of "reputable independents" above is current as I understand it but worth verifying recent project track records.
The line between aggressive promotion and securities fraud is jurisdictionally specific. ASX has historically been more permissive than the US SEC. This is changing slowly.