Last week was a busy week here in Vancouver. On May 5-6th we had the Metals Investor Forum, which again was a highly informative event.
I know I’m biased because I help put the event together, but I really appreciate the MIF format. For those unaware, the conference brings together a group of subscriber-supported newsletter writers, the key commonality being that none of us take money from companies for coverage. The writers then invite companies they follow (i.e. own) to present.
The result is a high caliber group. I was very familiar with more than half of the companies there but I made sure to learn about the others, because if they earned a recommendation from one of my peer writers then they offer something worth investigating. As a result I left the event very interested in three new ideas.
Of course, it isn’t just the companies that make the conference great. The attendees are a highly informed and engaged group, which makes for very good questions and conversations.
And each of the newsletter writers spends 20 minutes at the podium explaining what opportunities and drivers they currently see in the market.
Those presentations are all available online. These videos represent a vault of insight, so if you have a few 20-minute blocks to spare I encourage you to watch a few. Click on a presenter’s name to link to his video.
For those who prefer reading to writing, I also asked each letter writer to summarize his presentation. This group represents a pile of knowledge, experience, and insight in this sector, so I wanted to take advantage of the gathering for your benefit.
So below: the key points from each, in his own words.
Joe Mazumdar – Exploration Insights
I focused my talk on major miners. Here is the summary page of my presentation, titled ‘Too big to fail?’
- Share price returns indicate that larger gold producers (>US$10 B) can still outperform their benchmarks (ABX, +65%; NEM, +37%), meaning they are still alive and kicking.
- 2016 FCF yields suggest that companies like NCMGY, NEM, and ABX are still good value exceeding the peer group avg. (6-9% > 4%).
- Not all ounces are created equal. Market has no problem paying a significant premium (>US$500/oz vs. avg. US$255/oz) for AEM’s low-geopolitical-risk (65% in Canada and U.S.) high grade (2x the average of its peer group) gold reserve base.
- In the near term, investors also appear to be fine with the depleting reserve profiles of major producers—4% y-o-y decline in 2016.
- Adaptation to a volatile gold price is key for survival. Not unlike the dinosaurs, it is not easy to change course quickly. An evolutionary path that leads them to a smaller core that generates double-digit returns at current gold prices should work, at least in theory.
- Divestment of noncore assets has proven easier than populating a high-quality project pipeline with new discoveries. We believe that companies without a significant global grassroots exploration program will need to invest in prospect generators and grassroots explorers to achieve this goal
- Our investment thesis is based on this assumption and informs our acquisition of companies with technically competent management teams and capital market experience exploring on district-scale land packages for high-grade deposits devoid of fatal flaws in mining friendly jurisdictions.
Eric Coffin – Hard Rock Analyst
"There is a historically massive divergence between opinion about forward economic growth and actual economic activity. How this divergence resolves itself in coming months will determine the path of interest rates, economic growth rates and, in turn, precious and base metal prices.
“My expectation is that opinion or, if you will, confidence will dissipate somewhat as hard economic readings continue to underperform. That should lead to reduced nominal and real yields which should help precious metals and commodities in general. Lower actual growth in the US may lead to some selling in base metals but growth in China and Europe is far more important when it comes to base metal demands. Zinc should do well because of supply issues and copper should maintain current price levels.
“I remain focused on discovery stories where short term metal price moves don't really matter anyway, as well as successful developers because good lowest quartile cost metal deposits will always be in demand."
Jay Taylor – J Taylor’s Gold, Energy, and Tech Stocks
“Mainstream propaganda would have us believe interest rates are rising because the economy is gaining strength and thus generating demand for capital for productive use. But in fact, traditional sources of U.S. Treasury funding such as foreigners, social security and QE (previously called central bank monitization) have been declining dramatically such that a mysterious "Other" category had to be used to keep interest rates from rising rapidly post QE.
“The Treasury does not explain what "other" is but it accounts for over 51% of so called "domestic" sources, which have grown dramatically in light of a net outflow of funds to foreigners in the last two years and in light of a major decline in intergovernmental funding (mostly social security).
“So my view is that rates are rising not because the economy is strong but because there is a lack of saving. I speculate that the "other" category is likely back door central bank pumping of some kind or another to keep rates from rising even further as any significant rise in rates now would blow up the entire system.
“Note: IG stands for Intergovermental funding which is comprised almost entirely of social security funding, which is in a dramatic decline now due to a) an economy that sucks with lower wages and fewer workers and b) a surging number of older guys like me and gals who are enjoying social security and medicare insurance benefits.”
John Kaiser – Kaiser Research Online
“We are in the second year of a discovery and exploration bull market similar to the one that ran from 1992-1997. Its sentiment trajectory will be ready to go exponential in Q4 of 2017.
“The macro outlook does not offer any reason to believe in substantially higher metal prices over the next few years, though individual metals may experience higher prices due to supply disruptions or new technology driven demand. The market has tired of the tyranny of short term metal price trends, in particular gold, and is asking resource juniors to deliver gains through something they can control, such as exploration that results in a discovery worth developing into a mine at today's metal prices. The shift is evident in the surge of financing activity directed at juniors focused on discovery exploration, not feasibility demonstration, as well as a new trend whereby producers are outsourcing exploration to juniors with district scale or high potential projects by making strategic equity investments up to 19.9% without any project interest rights.
“Gold at $1,200 is the same as $400 gold in 1980, inflation adjusted to the present, and that’s worse than a big wash because since 1980 miners have doubled the above ground gold stock. Now that the ‘evil socialist Obama’ is gone and the Freedom Caucus controls all branches of the US government we no longer have to worry about fiat currency debasement, hyper-inflation or unlucky people sharing in the wealth of the nation. Time to make gold discoveries that work at $1,200, but do keep in mind that no Republican presidency has ever failed to increase the national debt by a greater amount than any predecessor.”
(For those who don’t know John, there may be some tongue-in-cheek in that last paragraph.)
Jordan Roy-Bryne – The Daily Gold
“My talk was titled The Bearish Bull, which references the dichotomy between the mining industry, which saw its bear market end 2015-2016, and metals prices, which have rolled over again and could threaten 2016 lows. I argued that the technicals are bearish and the fundamentals for precious metals will worsen over the balance of the year due to stable to rising rates (temporarily) and inflation which peaked a few months ago.
“Until the US stock market and economy run into problems, which will turn macro fundamentals in favor of precious metals and later the other metals, the bull market is on hold. Despite my bearish outlook I expressed extreme optimism for 2018 and believe we will see a good buy opportunity in juniors in the middle of the summer.”
Sean Brodrick – Energy & Resources Digest
“The title of my talk was Gold Cycles Higher. And it was about the regular gold bullish cycle being compounded by other forces in discoveries, the rising middle class in Asia, US debt and more. I also talked about how politics is affecting economics: "Feelings Trump Facts. Trust Trumps Truth." The global economy is sending up some warning flags. It could make for an interesting year. And I closed with some valuation ideas. A place for investors to start their own discoveries.
“Let me add a chart I wish I'd had at the Forum. I think I told attendees I was more bullish on gold than when I'd arrived simply because so many smart people there were not expecting a rally until the Fall ... or January. That made me take the opposite side. That we'd have a rally sooner rather than later. Simply because few expected that.
“But I made this chart today. See attached. It's an awfully short-term chart, and we'll see how things work out. In the end, we are fleas riding a dog around, thinking we're the bosses, right?”