It was bottom’s up at a market bottom — hopefully — for the latest version of “At The Bar” featuring lively conversation and commentary on mining as it relates to investing.
The popular feature saw mining personalities belly up after the Vancouver Resource Investment Conference in January. Brent Cook and Mickey Fulp brought the grizzled wisdom, while newcomers Joe Mazumdar and Nicole Adshead-Bell offered fresh perspectives.
Lesley Stokes, staff writer at the Northern Miner, hosted the conversation, much of which revolved around the bear-market malaise and financing crunch faced by mining companies.
Nicole Adshead-Bell of Cupel Advisory, a former director of mining research at Sun Valley Gold, notes that mining is “an industry that, at the worst times, tends to make the bad decisions.”
“This is a time when we should be thinking about future, it’s a time when you have a lot of good people around, valuable resources in terms of drill rigs, experienced personel, etc, and valuations that are arguably the lowest they’ve been in the last 10 years,” she said. “I would consider it to be a really interesting time.”
Joe Mazumdar, who recently joined Brent Cook’s Exploration Insights newsletter, drew on his experience working for a major gold producer. He said the gold industry historically only cares about production, while the copper industry pays more attention to costs and making money.
“They’d only care about growth, they wouldn’t care about return. They rode that for about seven years and now they’re paying for it. Now they’re starting to get, as Brent has said before, religion about getting return,” Mazumdar said. “That’s a completely different notion for them, and it involves a lot of pain in terms of impairments, in terms of writedowns and in terms of growth. You look at assets differently.”
Mercenary Geologist Mickey Fulp blamed a “Wall Street style of capitalism” that focuses on growth for growth’s sake. Mining is a value industry, not a growth industry, and companies that mine “ounces of value” and pay dividends will see their shareholders rewarded.
Brent Cook of Exploration Insights said he thinks the development and mid-tier gold producers offer the safest upside and lowest risk in this market.
As for the majors, they are cutting back on development and on exploration — moves that will “bite them in the ass come a few years down the road.”
“That’s when we’re really going to make money, because we’re going to own the stocks, the only companies left that are actually capable of finding something or that have something,” Cook said.
“We’re going to mine ounces of value, pay dividends and reward our shareholders” – eventually investors will reward their shareholders.
“In a bull market, everybody wants torque, everybody wants high-beat names, and high beta generally equals lower quality oz. In a bear market, people care about free cash flow.”
Related reading: Mining analyst Joe Mazumdar’s vision for ethical research
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