Dawes Points: Hong Kong edition

by Alison Sammes

Mines and Money Hong Kong March 2014

Key points

  • More sombre mood than 2013
  • Many excellent presentations
  • Resources  companies continuing to make operational progress
  • Great thinkers talking
  • The Robert Friedland factor
  • The rise and rise of Africa
  • Rocket scientists mining asteroids (yes in your lifetime!)
  • But it all still looks very good for resources sector

This year’s Mines and Money in Hong Kong didn’t quite have the buzz nor the numbers of March 2013 but then the subsequent carnage of April –June then softness to December 2013 probably removed half of global conference marketing budgets.  But we did receive a treat in the form of an outstanding conference format and some truly brilliant speakers. This format would be extraordinary during a real bull market.  And it is coming sooner than most think.

Most of you might know that from about 2004 I used to lead sponsor the Excellence on Mining and Exploration(which became Mines and Money Sydney… and also Excellence in Oil and Gas) also Mines and Money in its early days in London, Sydney and Hong Kong.

Most of you would also know that year after year the numbers of investors rolling up would continue to disappoint and I think you won’t be surprised to hear that not much has changed.  So the Disbelief and Pessimism period is continuing.  That famous 10 year Bull Market from 2001 that no one came to and the one everyone thinks is all over or at best on hold. Get ready for Stage Two.

So you just have to remain optimistic that one day participation will improve and market breadth will return and everyone will be happy again.  It will be soon and it is happening now. You can see it in our Dawes Points portfolio.

But the key issue for me at these conferences is to see the progress that the mining industry has made in discoveries, output, technology and sophistication.

The organisers had twice as many speakers and panellists this year (about 200!) and about 150 companies were represented in presentations or at booths.

Interestingly the numbers showed about 68% Australian companies on ASX, 15% on TSX a couple from AIM and about 10% Private Equity types.

Gold stocks still dominated with about 34% of those present but copper (17%) and iron ore(15%) were well represented.  Good to see some opportunities on my favorites of coking coal, uranium and technology metals.

But the mood was a little sombre.  Bears at play abounded, with contempt for managers in mining and sneers for poor fool investors and that any recovery was a long way off.  Or, only gold shares might be interesting in the apocalypse to come.  Everyone said iron ore was the world’s most obvious short and of course it was headed for US$60/t.  Everyone. (Except Dawes Points of course!) One speaker was very optimistic – he was awaiting the final capitulation in gold stocks before getting ready to buy!

I didn’t have the heart to tell him that the market for resources had bottomed back in late June 2013 or that oil and gas stocks were making all-time highs in the US markets (but they are not resources stocks are they?) or that the US XAU had fallen 65% (with quite a few down >90%) and the ASX XGD had fallen 80.0% with lots of small stocks down >95%.  Yes, waiting for the final capitulation!

Most still expected to see more “slowing” in China and more of the downturn in the US and stock markets everywhere were a “SHORT”, especially “Emerging Markets”.   Funny how a PER of <10x and price level at that of 2001 despite the economy having grown 580% from US$1,199bn to US$8,227bn in 2013 makes people bearish on China.  And so many emerging markets following the US markets to all time highs. Oh to be still a bear after the bottom!

The cynics also need to be aware that record current and still growing global consumption of resources (thank you China for 45-50% of the total) needs current and growing record production and that resources and reserves need to be replenished at a record rate.  But they are not.

Despite the data showing more money is being spent on exploration to find less new resource and that discovery costs per unit are rising the market thinks resources prices can only fall.

Red/green/black tape has now added delays and now the average mining project is 20 years from discovery to commissioning. It was only 10 years a decade ago.

Despite all this, companies are still working away to discover deposits and are still developing projects because the world needs them.

The conference structure provided a good sectoral streaming that allowed comparisons amongst peers and it was helpful to have the competition for the few available funds.

The results show some remarkable achievements in output, exploration and some project developments but I also saw some very bold initiatives that brought infrastructure of new railways and ports to regions that would not only provide new capacity and product to growing world demand but also new domestic markets.  Particularly in Africa, Sth America and Western China/Mongolia.  Developments in new technologies are also important to improve energy efficiencies and overall operating productivities.  We need to keep watching what is coming along next.

These major mining conferences such as M&M often bring together some of the world’s best thinkers, particularly those concerned about strong money and the role of mining in the financial world with issues such as currency stability, actions of central banks and inflationary trends.  Gold producers obviously think about the impact of government and geopolitical issues on the price of gold but all in the mining industry are interested in currencies, market demand and the costs of mining, processing and discovering.

Great thinkers such as Jim Sinclair, Jim Rickards, Clem Sunter and Frank Holmes gave experienced views on these issues and key industry leaders such as Nev Power CEO of Fortescue and David Harquail CEO of Franco Nevada gave business perspectives and assessments.   Real brain food.

Attending these conferences allows you to also see the phenomenon of Robert Friedland in action.  Friedland is the consumate showman and his presentations are there to shock you with their scope and vision.  Jaw dropping stuff.  Friedland was in the vanguard of China bulls and his grasp of key drivers a decade ago in copper and the demographics of China were truly visionary.

His latest story focusses on Africa, home of 900 m people, many of whom are attaining middle class wealth courtesy of the mining industry and as the middle classes achieve this wealth it is providing a new political stability previously unknown.  Possibly the fastest growing economic region today.

His Ivanhoe Mines has two new massive orebodies and another high grade Zn-Cu mine for reopening.  Not satisfied with having sponsored the discovery of one of the world’s largest nickel sulphide deposits (Voisey Bay Canada), one of the world’s largest copper deposits (Oyu Tolgoi in Mongolia),  he has uncovered one of the world’s great platinum/palladium deposits (resource so far of ~75moz 4PGE @ almost 4g/t4PGE) at Plats Reef (ore body thickness is 24m compared with the best the nearby Bushveld’s 1m thick reefs offer – Bushveldt is probably 350moz 3g/t 3PGE) and then massive new copper deposit (Kamoa 520-790mt @~2% Cu – world’s largest undeveloped high grade copper deposit) in the DRC and to top it all off he has a major new zinc deposit with 25mt of 20%zinc and 2% copper at Kipushi also in DRC.  These ore bodies are extraordinary by any standard and go to show how lucky you become when you work hard over long periods.

The Ivanhoe Mines share price is ignoring all this (IVN.TO) but I am sure Africa isn’t.  The activities in the DRC and Sth Africa are well away from known trouble spots and have progressed well over several years.

IVN.TO chart

New Infrastructure and rising export revenues makes most Africans very happy.  All isn’t perfect in Africa but so much is improving.

So we can think of Africa as being more than Sth Africa and that Mugabe creep and as 900m consumers entering the markets and requiring infrastructure of ports, railways, dams, power and telecommunications.  Just the sort of things the mining industry needs!

So the rise and rise of Africa is something you should not be ignoring.

The finale of the show and an excellent one at that was the presentation by Planetary Resources   about mining asteroids!

And what a concept.  Some of the world’s most inventive entrepreneurs have backed this and there should be an IPO sometime in the next year or so.

The company has Richard Branson (of course!), the two founders of Google and Ross Perot Jr amongst many other big names and successful people.

The concept is not so much as matter of mining gold or nickel but rather looking for some other high value products to strong market demand.  How about water being currently supplied into space at US$30million a tonne?   How about extra oxygen? These asteroids contain hydrogen, oxygen, carbon, water and some other useful elements for rocket fuel products. Some asteroids apparently have very high water contents and these rocket scientists consider that water can also be converted to rocket fuel. Water and fuel already in space would make Solar System space travel much easier. Not all asteroids are in the Asteroid Belt.  Many small asteroids come reasonably close to Earth so access is not too difficult. Of course there would be gold and platinum in massive size from these alloys and there may be ways to just drop the stuff down to Earth in 500t lots with a parachute!   Keep an open mind!

Asteroids have a furnace on one side (the Sun) for very low cost perpetual heating and a freezer (-270oC) on the other in the shade.  And there is a vacuum to boot!

Great ideas for heating then cooling.  The engineering is what you would expect from rocket scientists but it certainly is interesting.

Of course there is the matter of who owns the asteroids, who to pay taxes to, who gets royalties and will it cause earthly conflicts.  And of course some NGOs will be rubbing their hands with glee about a new frontier for them to get their sticky hands onto.

This is not an advertorial for M&M but it is important for everyone to see that conferences like this provide mechanisms for exchanges of ideas and allow the competitive spirit in each of us to come forward.

By the way, the markets are now really moving and we have seen some very strong performances from some smaller stocks.  Signs of things to come.

The iron ore price has not collapsed (told you so) and copper looks great.  The Paradigm portfolio is looking chipper, especially the smaller stocks, and the next year will be very good.

Dawes Points Portfolio

Keep watching China (Shanghai) and India (Mumbai Sensex) for some excitement over the next year.  China has new management( it is taking a while to flow through and with the property market taking a breather I think we might find stocks more attractive there) and India is about to have an election with a possibility of real change occurring there.  Especially for stocks, and for gold demand.


Don’t be left behind.

I will also be looking at gold again this month and expect we will be seeing a good run very soon.

Beijing 3 April 2014

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