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Gwen Preston – “Capturing the Metals Investor Forum”

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Gwen Preston – “Capturing the Metals Investor Forum”

 

 

 

 

 

I got to enjoy another busy Metals Investor Forum last Friday-Saturday, alongside a packed crowd of attendees. These events are always great fun for the opportunity to talk with subscribers and fellow investors. They are also great sources of information, as the newsletter writers I host alongside bring their latest ideas and favorite companies.

On the ideas front: I moderated the closing panel, which is a nice way of saying I got to hammer the other letter writers with questions in front of an audience. At the end of two days of bullish gold talk, I started with the obvious question: where do you see the price of gold a year from now? No one thought it would be lower; forecasts ranged from slightly stronger (US$1,600 per oz.) to nicely up (US$1,850 per oz.).

We discussed the biggest risks to those forecasts, for better and worse. Thinking was fairly uniform: the price could end up way higher if something unforeseen rocks the global economy or is US-China trade talks truly fail and it could end up lower than anticipated if Trump and Xi somehow hammer out a broad trade deal, which no one thought likely.

From there I diverged for a moment and asked: outside of gold and silver, is there a metal or metals that you like right now, where you see upside in the next 12 months?

I didn’t expect anyone to like base metals and no one did. What surprised me was that the panel was similarly uniform in where they did see opportunity: platinum and palladium.

For more on that read on, as that is a focus topic for today’s letter. Note that I said last week I would talk about the platinum-palladium opportunity this week – I started looking into this space long before the panel pointed at it!

Next I asked each person an individual question. Panels often get boring if everyone answers the same question; moreover, the guys on this panel have clear areas of expertise that I wanted to tap.

Eric Coffin: You rarely write about companies with defined deposits, let alone those building or operating mines. What is it about discovery stories that you love so much?

  • The incredible way that a discovery creates value from nothing – it turns rocks that were previously worth nothing and turns them into cash.

    · The interlaying of science and capital markets and jurisdiction and social relations that is needed to make a discovery – it’s really hard and that makes it so satisfying, and profitable, when it happens

    · The insulation from metal prices: the market will reward a standout new discovery no matter what’s going on with metal prices. NexGen’s ride from $0.40 to $4.00 in a terrible uranium market is a good example.

Greg McCoach: You have gone through several metals cycles but you are more excited about the opportunities in gold right now than you’ve ever been. Why?

  • Almost every fundamental force that could support gold is now lined up doing so. It’s the best macro setup for a gold bull market that I’ve ever seen

    · After such a bad bear market, followed by this not-bear-but-not-bull market we’ve been in for almost four years, explorers and developers that are still active are truly the cream of the crop. They’ve been able to pick up really good land packages; they’ve had time to come up with new geologic ideas that are uncovering gold in places and rocks previously thought barren; with capital so hard to come by they’ve developed very strong targets before drilling; and the best people in the space have concentrated in the limited number of remaining companies.

    · Combine those two things – the best macro setup for a gold market ever and a selection of very high quality explorers primed to run in that market – and it’s incredibly exciting.

John Kaiser: you are all about informed investors. If every investor here today could leave with one new skill, question, or approach to investing in this sector, what would you want it to be?

  • The size of the prize. That’s what every investor should drive to understand with a company or project, because if you understand the size of the prize – tonnage and grade – then you can actually know where the share price should go if it all plays out.

    · How big is it based on what you know now and how big could it be if your theories are correct?

    · Understanding size isn’t easy. High grade gold veins versus copper porphyries versus zinc-rich VMS systems versus silver carbonate replacement deposits all demand different questions to understand scale and therefore value.

    · Companies cannot tell you how big they think it will be (it’s illegal for them to talk about potential beyond what they’ve calculated in an official resource estimate). But good management teams can walk you through the key questions and opportunities for the target they’re pursuing. And be leery of management teams who can’t or won’t do so.

Chen Lin: you are not a ‘gold bug’. In fact, you invest across several sectors. Given that broad investment perspective, why are you interested in gold right now?

  • I invest across sectors precisely because they hedge each other. Gold versus biotechs versus oil and gas – almost always one or two are performing while the other(s) are not. So I move in to each space based on sector opportunity and right now gold offers that.

    · The fundamentals for gold are very well aligned, so I see gold price gaining in the next year or years. To profit from that I buy gold miners with controlled costs because all of gold’s price gains should go to the bottom line.

Jordan Roy Byrne: take us through how to apply technical analysis to this space. You use charts to forecast gold, for sure, and to assess potential for large gold companies…but does technical analysis work for small companies and if so how?

  • First of all: there are all kinds of people out there who offer ‘technical analysis’ of all kinds of charts. And there’s a huge range of quality or usefulness in that! In general, the more lines and levels and arrows the chart has, the more wary you should be. Good technical analysis should use moving averages and perhaps one or two other inputs and that’s it – keep it simple.

    · In the junior mining space, technical analysis of share price charts has limited utility. If there is at least some consistent volume, then you can certainly pay attention to whether the price is above or below the 50-day and 200-day moving averages and you can look at previous highs and lows to get a feel for support and resistance.

    · But with junior stocks there are a lot of other factors that are more important. Does the company need to finance? Did they finance recently and therefore is a free trade date approaching? Is there a pile of warrants that will anchor it at a certain level? Is there a corporate development coming that could have outsized impact, like a property payment, a long-awaited permit, or a drill result?

There was lots more to learn at the event, of course, but I thought summarizing the panel was a good window in the topics discussed. I also learned about a few companies I hadn’t heard of before, answered loads of questions, and even admitted at the dinner that I once traded half a pig for a broken down snowblower. (Don’t ask!!)

If it’s an option, consider attending a future event. Most Metals Investor Forums are in Vancouver but we do hold one a year in Toronto, just before the PDAC conference. This year that MIF is happening Feb 29 and March 1.

 

Posted November 26, 2019

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