We had the wonderful opportunity of attending the Canaccord Genuity Global Resources Conference during the past couple of days in Miami, Florida. Canaccord put on a first class event with many of mining and energy sector’s best CIOs and CEOs on hand. Below are some of the key takeaways from the conference:
- Most miners are intently focused on the cost side with many companies such as Yamana highlighting a downward sloping all-in cost curve (Yamana is forecasting $850 all-in cost per ounce of gold in 2014)
- Yamana CEO Marrone said the words “risk mitigation” at least 3 times during his presentation – basically most senior producers are in survival mode focusing on only their lowest cost projects and mothballing everything else
- US Global CIO Frank Holmes made an excellent point regarding the huge energy cost advantage that the United States has relative to other countries such as Canada “in Toronto it will cost me $150 to fill up my gas tank, in Texas it’s only $70” – this leaks through to every aspect of the economy and makes the US much more competitive
- Holmes was also very positive on Alamos Gold (AGI) saying that the company has an incredible cost focus and generates excellent free cash flow – we might add that AGI has one of the better charts of any mid-tier gold producer
- The Wolfcamp Shale is an absolute monster (2nd largest shale oil play in the world behind Saudi Arabia’s Ghawar) – PXD plans to have 50 horizontal wells there by 2018
- There is a $15 “Middle East risk premium” in the WTI crude oil price (i’ve heard this for 5 years though…), crude market is well supplied and likely to only become even more well supplied in coming years as more and more shale oil comes online
- Goldcorp, Silver Wheaton, Pacific Rubiales and Lionsgate Films founder Frank Giustra doesn’t see how the Fed exits from QE-infinity and thinks there won’t be any tapering anytime soon “We have to do this whole debt ceiling fiasco again in January”
- Lots of private equity guys getting involved in the resource sector buying the most attractive assets at 70-80% discounts to where they were valued just 2 years ago – this puts a “smart money” deep value bid in the market – sign of a bottom?
- Cameco sees a 20% supply deficit in the uranium market by 2018 – however, lots of uncertainty surrounding Japan’s reactors and when they will come back online, which is expected to start slowly in 2014
- New Gold (NGD) CEO Randall Oliphant gave an excellent presentation, NGD is being aggressive and continues to make acquisitions of attractive assets – if you think gold is heading back to $1500+ NGD is a way to play it, the stock could easily double from current levels if gold hits 1500
- NGD has all-in sustaining costs of $875/ounce vs. a mid-tier producer average cost of $1,050/ounce
- Silver Wheaton (SLW) gave an excellent presentation to wrap up the conference – SLW did not make any acquisitions for roughly 2 years (early 2010- early 2012) because they felt the market had gotten ahead of itself (this proved to be a wise decision)
- SLW has lower administrative costs than the iShares Silver Trust (SLV) – .32% vs. .50%
- Most executives and presenters admitted that the mining sector has terrible timing i.e. making acquisitions and ramping up costly projects when metal prices are high, and getting defensive when prices are low
The overall mood of the conference was fairly optimistic, especially considering the backdrop of a very difficult resource market. Many companies are starting to look at making accretive acquisitions, which is a noticeable change from the “bunker mentality” of a few months ago. Our favorite names from the conference were AGI, NGD, and SLW – a pairs trade of long SLW/short SLV appears to be particularly attractive from current levels. We would like to thank Canaccord for their hospitality and for putting together the best conference we have been to in a long time.