Disruptive Discoveries Journal

"What If It's 1982 Again?" - Thoughts on Gold and My Recent Trip To Europe

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF version of this note, click here.

 

Europe has always fascinated me. A thousand years of rich history confront you regardless of the country or city you visit. Opportunities to talk to Europeans from all walks of life about their views on current events or the global financial markets put in a unique historical context are worth the time and effort it takes to plan a trip.

 

My recent trip to Frankfurt, Munich, Zurich, and Geneva was no exception. I went as a keynote speaker on the Fourth Annual Zimtu Capital Bus Tour where I spoke in each city and served as a moderator and emcee. Accompanying Zimtu were a well-rounded stable of companies representing resources as varied as diamonds, potash, coal, and uranium. Representatives from the Canadian Securities Exchange along with several CSE-listed companies were also in attendance on the bus, and as these companies were not natural resource-focused (vertical farming, biotech, etc), it gave this year’s tour a more diverse flavor than in years past and everyone – from institutional and individual investors to the companies themselves – had a unique opportunity to view the small cap discovery sector in a different light.

That said, this note is really intended to focus on what European investors think of the resource sector now that we are three years into what feels like a seemingly relentless malaise. 

The Only Question That Matters In Mining Investment Today

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF version of this note, please click here

 

This note will be shorter than usual as my travel schedule seems to have gotten the best of me. I recently returned from Costa Rica and am off to Europe tomorrow with Zimtu Capital to join them in Frankfurt (Nov 6th), Munich (Nov 8th), Zurich (Nov 10th), and Geneva (Nov 12th) as a keynote speaker on their annual bus tour. If you’d like to attend any of the presentations (numerous TSXV and CSX companies will be presenting as well) please let me know and I can get your name on the invite list.

 

The recent swoon in the metals markets likely has all of us questioning our faith and resolve. Personally, I see no reason why gold and silver, in particular, can’t go much lower and stay there indefinitely. Ultimately, supply and demand always equilibrate, but it can be painful waiting for this to happen. The perception of increasing economic strength in the US with a recent 3.5% GDP growth print plus continued US Dollar strength are outweighing the continued reports of gold and silver consumption in the Emerging World. 

Mining Investment in Hong Kong – Optimistic but Searching for the Turn

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF version of this note, click here

 

 

I have recently returned from Hong Kong where I was privileged to deliver a keynote address at the 121 Mining Investment Forum. In an environment which is crying out for a new conference model, the founders at 121 are on to something. There is an institutional appetite in Asia for mining deals despite the cyclical and structural disinflationary headwinds that appear to be intensifying.

My motive in attending the conference, aside from networking, was to get a feel for how Asia-based investors viewed the metals markets and what sort of questions they were asking. 

Consolidation Amongst Miners Picks Up As Growth Slows

Chris BerryComment

By Chris Berry

 

 

It’s interesting to note that on the same day the International Monetary Fund released their annual World Economic Outlook which lowered expectations for global growth (yet again), that several potentially large mining deals were either launched or mooted.

While the talk of the potential deal for a merger between Glencore (GLEN:LN) and Rio Tinto (RIO:LN, RIO:NYSE) dominated the headlines, two (relatively) smaller deals were also announced recently.

Anglo American (AAL:LN) will reportedly commence with a sale of up to $1 billion worth of copper assets in Chile including the Mantos Blancos and Mantoverde mines, along with AAL’s 50.1 percent stakes in the El Soldado mine and Chagres smelter according to Bloomberg. These assets are small relative to others in AAL’s portfolio, but a willingness to part with them says a great deal about the company’s thoughts on the need to generate returns in the current macroeconomic environment.

Q3 2014 Energy Metals and Economic Review

Chris BerryComment

By Chris Berry

 

For a PDF version of this note, click here.

 

  • To call Q3 “challenging” is an understatement. Growth momentum is increasingly absent.
  • Most metals were relentlessly forced downwards in Q3.  Gold declined .13% (almost wiping out its gains YTD), silver fell .11% (down 13% YTD), and copper swooned 4.96% (down 9.42%YTD).
  • Rather than pinpoint an “elephant in the room”, there are multiple negative catalysts including slower growth in China, a relentlessly stronger US Dollar, and excess commodity supply.
  • Geopolitical events including the downing of Malaysian airline’s MH17, the potential spread of the Ebola epidemic, and the “rise” of ISIS have not had a significant effect on metals prices. The “metals” disconnect has many analysts, myself included, puzzled.
  • It raises the question of whether or not the current downturn is structural rather than a “normal” cyclical downturn from which we always expect to recover.
  • Q4 themes and catalysts may include a stimulus package in China aimed at boosting consumption, continued US Dollar strength (negative for gold and a deflationary precursor) , an announcement of QE in the Euro Zone, and the end of QE in the US.

 

In Deflation’s Grasp?

We have discussed the inflation/deflation debate many times in the past. It now seems clear that deflationary forces are predominant. Falling commodity prices, sparked by excess global supply and muted demand, aging societies, a stagnant velocity of money, and the ubiquity of technology continue to conspire to suppress and overwhelm the Federal Reserve’s attempts to stoke inflation.

As Lithium Nears An Inflection Point, Lithium Americas Poised to Capitalize On The Growth

Chris BerryComment

By Chris Berry (@cberry1)

 

Introduction

I have been optimistic on lithium demand since we first started covering the space through Salares Lithium and its merger with Talison Lithium in 2010. My investment thesis revolves around the fact that though lithium is plentiful and the market structure resembles an oligopoly, there is “room at the top” for select lithium development plays that possess a distinct disruptive advantage which lowers their overall cost of production and allows them to sustain operations and thrive.

Demand for lightweight electronic devices and mobility that is reliable and cost effective ensures robust lithium demand in an electrified future. There simply is no readily available substitute to the lithium ion battery and the double digit growth rates in battery use in recent years confirms this.

One company that I believe holds promise to join the ranks of production companies is Lithium Americas (LAC:TSX, LHMAF:OTCBB). I have discussed the company in video interviews previously. This is the first time I have discussed it in depth in print.

There are several reasons for LAC’s unique value proposition. The company’s new management, strengthened balance sheet, superior asset, and important cooperation agreement with POSCO (PKX:NYSE, 005490:KRX),  rank it among the top near-term lithium production stories.

The agreement LAC has in place with POSCO has the potential to transform the production dynamics of the industry and render the age old debate about which lithium production method is better – brine or hard rock - irrelevant.

LAC appears to be at an inflection point and is the focus of the following report. 

 

Anatomy of a Graphite Deal: Flinders Resources Takes Out Big North Graphite

Chris BerryComment

By Chris Berry

 

 

Off To The Races

The first business day after a major holiday is always fun in that your inbox is flooded with press releases, analyst updates, and the occasional bit of significant news. Such was the case Tuesday when Flinders Resources (FDR:TSXV) announced its intention through a binding letter agreement to acquire all outstanding common shares of Big North Graphite (NRT:TSXV) by way of a plan of arrangement.

The deal caught my eye as it is the first of significance in a graphite space which has been carried by the momentum from vehicle electrification hopes but suffers from excess capacity, financing difficulties, and investor malaise as do many other commodities today. 

Despite its small relative size (the Albemarle (ALB:NYSE)/Rockwood (ROC:NYSE) deal amounted to over $6 billion), could offer valuable insight into whether or not we’ve turned the corner in graphite.

 

The Details

One key element of a deal is to remember that shares can act as currency and this was not lost on FDR management. 

On Labor Day 2014 Beware, Equity Investor - The More Things Change...

Chris Berry2 Comments

In July 2008, then Treasury Secretary Henry Paulson touched off the greatest banking crisis of our generation stretching back to the 1930’s.   On Sunday, July 20th 2008 before the markets opened in Asia, the Treasury Secretary of the United States stepped in to guarantee the US bond portfolio owned by China.  Earlier that same day he had commented on national TV, 

“I think it's going to be months that we're working our way through this period, clearly months. Of course the list [of difficulties] is going to grow longer given the stresses we have in the marketplace, given the housing correction - but again, it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”

We have now spent 72 months - or 6 years - in the economic malaise that followed the US housing bubble’s implosion.