Oil & mineral arbitrations: What will rewards be like?

One of the weirdest types of speculation you can do in the stock market is to by shares of companies like Gold Reserve (GRZ), Infinito Gold (IG.to), or the company I don’t like to name, as a way of betting that you will get to take part in some sort of big payout when it eventually wins an arbitration case.

Personally, I think this sort of “investment” is much less intelligent than playing a nice respectable game of blackjack, as there is no way to calculate the odds, there’s no way to predict the timeline, and as a shareholder, your chance of getting any of the eventual winnings are nearly nonexistent.

But if it’s your thing, you might want to check out this article in Global Arbitration Review’s “Arbitration Review of the Americas 2011” about how much these projects may be worth in the eyes of arbitration panels. The short of it is that there is a big range of ways to measure the value a project. The authors conclude with a general case in favor of using discounted future cash flows of a project to measure the value of mineral and oil properties. This would be nice for the companies, as it gives a much higher value than, say, the book value of the property. But without getting into it too much, they are also telling you not to count on it.