House Mountain Partners

Energy Metals

The Looming Wave of M&A in Energy Metals

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF copy of this note, please click here.

 

One of the key takeaways from my recent visit to PDAC was that everyone’s looking. By this I mean everyone, be they investors, company executives, bankers, or private equity players is looking for something in Energy Metals. The distinction lies in exactly what everyone is looking for. While the traditional equity investor just wants the pain of this resource bear market to stop, there are those who I spoke with that are looking at this market as fertile territory for M&A. I could not agree more and my belief lies in one simple idea:

While we have witnessed billions of dollars of value destruction in recent years, we haven’t seen a commensurate amount of demand destruction in most Energy Metals.

The Chicken and Egg Problem with Energy Metals: Scandium as a Case Study

Chris BerryComment

By Chris Berry (@cberry1)

 

For a PDF of this note, please click here.

 

One of the biggest knocks I usually get from investors when discussing energy metals is that it’s too small. Lithium at 160,000 tonnes per year or cobalt at roughly half that are not big enough for the larger institutional money managers to focus on as other, more liquid metals markets are deemed safer (or likely just more familiar).

That said many of these “safer” opportunities are hampered by excess capacity and investor disinterest which continues to cast a pall over the commodities sector in general. The paradox is that despite the smaller size of most energy metals, they likely offer higher rates of return over the long-term as technology advances and quality of life between East and West slowly converges. To be fair, these metals will likely remain in niche status going forward, but avoiding learning about them risks walking away from unique opportunities.

It is this disinterest and general lack of funding availability that presents what I predict will be the seeds of the next bull market. This will be rooted in reliable access to the raw materials necessary to make technology supply chains run smoothly. As the demand for various technologies grows, these growth rates are dependent on the answer to one question:

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. 

What to Watch for With Energy Metals During this Earnings Cycle

Shelley Chen
  • With evaluation of junior resource companies challenging using discounted cash flow models, an alternative approach to understanding the various market sectors is a must.
  • I have written a great deal in the past about the benefits to be gained from listening to earnings calls from commodity and materials producers.
  • You must "read between the lines" of what is said and written, but statements made by CEOs and CFOs of large cap companies can offer insights into the strengths and weaknesses of various markets. This can only help with your analysis.
  • Today, I offer some of the insights I'll be listening for during calls this week and next. I also offer a list of companies whose calls I will be dialing into.

Finding Value Amongst the Wreckage in Energy Metals

Shelley Chen
  • Despite the beating investors have endured over the past 18 months investing in energy metals, I believe we have reached the bottom and numerous opportunities are in place 
  • What follows is a rough transcription of my recent remarks at the Cambridge House Vancouver Resource Conference 
  • I present a balanced case for optimism, the metals I am focused on, the strategy I am employing, and some of the metrics I rely on to gauge value 

Is the Worst Behind Us?

If you’re like me, and have invested in the junior markets over the past 18 to 24 months, you’ve likely felt like this: 

Events could spiral out of control at any time. The wreckage hasn’t just been centered on one metal either. Here is the one year price performance for a broad basket of rare earth exploration and mining companies that I track measured against major indices: