What I Heard in Vancouver!
WEISS RESEARCH
Sean Brodrick
1/24/2007 8:00:00 AM
I’m writing this just before I catch a plane back to Florida from British Columbia, where I attended the 2007 Vancouver Resource Investment Conference. The size of the conference blew my mind! There were way more exhibitors than last year, and the hall was jam-packed with investors looking for Canada’s natural resource bargains.
They were finding them, too — in gold, silver, lead, zinc, nickel, diamonds and many more. And my favorite metal, uranium, is so hot that the exhibitors set up a special “uranium alley” so investors could find these companies more easily.
I learned a lot there, mainly by asking the right questions and listening intently. Today, I want to let you in on three of the most interesting things I heard ...
“Keep Your Eyes on China, India,
And the Emerging Markets.”
The always excellent Frank Holmes, CEO of no-load mutual fund company U.S. Global Investors, enthralled the audience by explaining how China and India should push the global economy into overdrive.
Frank thinks we’re in a long-term secular bull market for commodities, but he explained that it could be difficult to pick short-term tops and bottoms. “The easiest place to call tops and bottoms is on Miami’s South Beach,” Frank said.
Frank also told everyone to keep their eyes on the emerging markets, and not just because more than 80% of the world’s population lives there. Those markets are growing rapidly and citizens are getting richer. In many cases, people are pulling themselves out of extreme poverty and into larger roles as consumers. According to some studies that Frank pointed out, when gross domestic product goes over $1,000 per person, consumer spending begins. And when GDP goes over $2,000 per person, people start buying cars.
You might find that hard to believe, but note that the Chinese have come out with a car that costs only $5,000. You think that’s cheap? In India, they’re selling new cars for $2,500 apiece.
Of course, Frank wasn’t the only one who had interesting things to say ...
“People Are the Most Precious Thing
In the Mining Industry Today.”
I can’t tell you who I heard this from because to give his name would reveal one of the stocks I’m recommending in my new uranium report, “Small Uranium Wonders.” So I’ll just call him Mr. X.
At a quiet lunch away from the conference, Mr. X explained how, in the heyday of the first uranium boom, there were 2,000 people working in the U.S. uranium mining industry. Today, the number is just 400 people — even though America’s uranium appetite is waking up again.
I often hear about a supply/demand crunch in trained geologists and mining engineers. Usually, the source is a white-haired miner wondering if anyone will be there to replace him.
Mr. X thinks this worker shortage is a big advantage for his company — because he’s put together a team of the top talent in the industry. In fact, other companies have been lining up to hire Mr. X’s company as a consultant or take it on as a partner just to get its expertise. But Mr. X and his crew are pushing forward with their plan to develop their own mine — with a timetable of bringing it into production in two years.
“Do we want to import our uranium from Russia? To be dependent on them as suppliers?” Mr. X asked. “How is that any better than being dependent on the Saudis to supply us with oil? No, if we want energy independence, we have to develop America’s own uranium resources.”
Our conversation was interrupted as another miner stopped by our table to say hi. After the other guy left, Mr. X smiled and said, “Our companies have comparably sized resources, in the same part of the country, with similar mining costs. And we’re both bringing mines into production in two years. Yet his company is valued way more than mine. Do you know why?”
Mr. X leaned forward and answered his own question: “Publicity. His company has it. My company doesn’t ... yet." I checked later, and found out that Mr. X’s company is valued at one-fourth the other miner’s company!
“I’m Patching Together a Portfolio
Of Promising Properties.”
I had yet another good conversation with a guy I’ll call the Ol’ Prospector. He has knit together a portfolio of uranium and vanadium properties across the American Southwest. Some of these were once mom and pop uranium mines, if you can imagine that such a thing ever existed. “You have to wonder what the kids looked like,” Ol’ Prospector joked.
Man, he was relishing uranium’s high tide! He’d been through the crash in the uranium sector in the ’80s (“absolutely no fun”), and now he was enjoying having the shoe on the other foot ...
He has enough money to keep him going. He’s drilling like mad, and working on getting his resource to conform to Canadian government standards. He scoffed at some other players that have already seen their share prices take off when “they have no compliant resource at all.”
The Ol’ Prospector also told me that his portfolio of properties is changing as he swaps with other companies. Look at a map of any uranium-prospective territory and you’ll see a patchwork quilt of claims. Heck, I could practically see some deals coming to mind across the exhibitor booths, as CEOs of various companies finally got a chance to get together.
I imagine the conversations started something like this: “Hey, you have two working projects in the Athabasca Basin, and I’ve only got one claim there and no time to work it. Meanwhile, you’ve got a stray property near my project in Wyoming. Let’s make a deal!”
No doubt that the big buzz for 2007 is going to be mergers and acquisitions. Why? First, as Mr. X pointed out, there simply aren’t enough people with the technical knowledge necessary to staff all these companies and projects. Second, the bigger the fish gets, the more investor money it attracts and the more attractive it becomes to major uranium players. I heard the names SXR Uranium One and Rio Tinto invoked liked those of patron saints, more than once.
Sorting the Winners from
The Tall-Tale Tellers …
These are just some of the things I heard in Vancouver! But the trick in small- and micro-cap resource stocks is separating the real deals from the time bombs. As Mark Twain famously said, “A gold mine is a hole in the ground with a liar on top.”
I had great fun at the conference, and I’m coming away with lots of great ideas. When I get back to Florida, the real work will begin. What a great time to be investing in natural resources!
If you want a piece of the big commodity bull market, and want to take a diversified approach, you could try a nice natural resources mutual fund like Frank Holmes’ U.S. Global Investors Global Resources Fund (PSPFX). This no-load fund has a low expense ratio of 1.3% and should make the most of the next flood of money into global resources. Or if you want to concentrate on precious metals — and I wouldn’t blame you — try the U.S. Global Investors World Precious Minerals Fund (UNWPX).
But for real outperformance, I’m sticking with the individual companies that will make the most of the global rush for natural resources. Here are three easy guidelines you can apply to your own trading:
1. I’m going to pick my investments by looking at both the fundamental and technical pictures.
2. I use a mental stop-loss on my trades. I know how much I’m willing to lose before I buy.
3. I’m buying smaller stocks for the longer-term — I won’t worry about short-term fluctuations, except as buying opportunities.
Yours for trading profits,
Sean
