At the recent Precious Metals Summit in Zurich on Nov. 4, Gianni Kovacevic hosted a fireside chat with two of the most successful mining entrepreneurs in our history: Ross Beaty and Lukas Lundin.
Mr. Kovacevic is chairman of CopperBank (CBK:CSE), which is accumulating copper deposits in this market.
I watched the hour-long discussion and wanted to summarize it for CEO.ca readers. I love to learn and believe that one of the best ways to soak up knowledge is to listen to people who have had previous success. When it comes to mining, that means Mr. Lundin and Mr. Beaty, whose track records in the mining space are second to none.
The three touched on a range of topics, from China and global economic growth to the copper, gold and oil markets.
First up was the discussion on “ChinAmerica” (China and the U.S.), the two countries that contribute approximately 40% of world GDP.
Mr. Lundin mentioned that China consumes about 50% of all commodities in general, across the spectrum. China is undergoing a major change from an infrastructure economy to a consumer economy, and oil consumption increased by 1 million barrels in the last year. Growth in China is slowing and experiencing a few growing pains, but not going away.
As for the U.S., the country has been on a strong economic pad the last couple years and has a flexible work force with increasing automation and very cheap energy. Mr. Lundin expects the U.S. economy to stay strong. China is hard to read, but we know it is growing and over time their economy will overtake the U.S. The American economy, however, is easier to understand and far more open.
Mr. Beaty said China is still in a bull market and growing at 6%, which is like 14% 8 or 9 years ago. The country is switching from an infrastructure to a consumer basis. He said it’s important to look at metals on an individual basis. Increasing wealth should result in a higher demand for gold. China is still using huge amount of metals but supply has gone “crazy.”
American growth is solid but will be tempered by a strong U.S. dollar. He expects 4-5 years muted total growth, not like the party we had for the last 5-10 years.
Mr. Lundin is heavily invested in oil – he believes we are touching a bottom in oil and that it could go to $70-$80 quite quickly. U.S. production is starting to drop and consumption is holding. U.S. producers are high-grading at shale plays. Oil markets will change from a supply-based market to a demand-based market as consumers switch to electric-based consumption.
Mr. Beaty, who chairs alternative energy producer Alterra Power (AXY-T), is not invested in oil but is bearish, because new technology has resulted in lots of supply. On the demand side, a fundamental issue is the problem of C02. As a result of global meetings, pretty much every government will be coming out with a climate plan to reduce C02 emissions. That reduction in the burning of fossil fuels will hit oil demand.
Mr. Lundin, chairman of Lundin Mining (LUN-T), says that electric cars use 3-4 x more copper. Copper is the biggest market at about 20 million tonnes per year, which is approximately 40% infrastructure and 30% electrical. Copper supply is coming off and at these prices, US$2.20 or lower, it’s hard for producers to make money. Overall he is slightly bullish on copper. Lundin Mining has been buying copper assets recently.
Copper is the only metal Mr. Beaty likes besides gold and silver and he thinks it has a pretty good future. It’s a space where he has done extremely wel and created billions of dollars in shareholder value. Copper demand going forward (next 5-10 years) will be strong with the demand for electric vehicles, a disruptive technology.
The problem with copper is the wave of production hitting the market right now and a fair amount of supply already in the pipeline (deposits that will be there in the next cycle).
Mr. Lundin’s gut is telling him that gold is scraping along the bottom. He is not a goldbug but has made a lot of money in gold. His newest gold venture is Lundin Gold, which is developing the Fruta del Norte deposit in Ecuador purchased from Kinross (for a fraction of what they paid for it). He is bullish long-term, citing money printing and China’s growing wealth.
Mr. Beaty really likes gold from a perspective of buying equities, because stocks are very cheap as people have given up and sold them off. He believes the entire space is cheap, from exploration right through to producers. His focus is on advanced projects – why bother taking the risk of discovery when advanced projects are so cheap?
Mr. Beaty said he loves this kind of market and has accumulated positions of between 10-30% in a dozen companies. He doesn’t know when the market turns but his gut feeling is the gold price should go up in the next 3-4 years. Gold equities are a great contrarian bet, in his opinion.
Other topics mentioned were Ecuador, where both mining entrepreneurs are invested in gold projects, and climate change and how it affects investing.
I highly recommend watching (or listening) as you go about your work today.
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