Play the Long Game: “This Week”

POSTED ON January 11, 2016 BY Riley Skinner
CATEGORY Stories,

This Week is a collection of articles, quotes and thoughts that speak to the state of the markets, whether macroeconomic or company centric. Click on the links to explore a collection of articles, or skim through the headlines for some quick context.

This Week… Play the Long Game

- The Telegraph came out with an interesting piece on the resurgence of long-term thinking:

“Amazon’s investment in R&D last year was a staggering $11bn, or three times the amount spent by the pharmaceuticals giant Bristol-Myers Squibb. Whatever it makes, it ploughs back into the company, creating staggeringly cheap products for consumers and opening up new markets for small companies in the process.” More here.

- Peter Koven thinks investors should play this “long game” in mining:

“For those who are patient and have the capital to ride out the tough times, 2016 may provide an incredible opportunity to pick up assets at fire-sale prices.” More here.

Peter suggests that 2016 might be the year that private equity capital spills over into distressed mining assets.

- Ex-PIMCO CIO Mohamed El-Erian sees similar opportunities in mining:

“The more compelling investment case is for individual companies and commodities where the downward self-reinforcing technical dynamics are likely to exhaust themselves as market forces recalibrate, thus setting the stage for a multiyear recovery.”El-Erian suggests investing in a vehicle that “would focus to a larger extent on single-asset opportunities in mining and non-traditional energy, with the goal of aggregating them into a diversified portfolio of holdings that would also manage to mitigate single-country risk.” More here (paywall).

The TSX and TSX Venture are ripe with single asset mining companies, but what type companies perform best during a recovery?

- Rick Rule highlights some past success stories in mining:

“One would be an optionality play from the last cycle called Paladin Resources … another example would be Lumina Copper Corp ...what they did early on in their incarnation was buy reserves.”

Specifically, Rick suggests buying companies that aren’t exhausting their reserves while the price of the underlying commodity suffers.

- On to GOLD …

“Gold prices ended the U.S. day session solidly higher, pushed well above the key $1,100.00 mark, and hit a two-month high Thursday. Safe-haven demand amid plunging world stock markets and geopolitical uncertainty has been featured all this week”. More here.

Could gold become the safe haven for capital flooding out of the markets?

From Kitco: “Gold’s correlation with equities may also be signaling a turnaround ahead. “The idea that gold is a safe haven suggests it should be inversely correlated with the risk-asset, the S&P 500.””

The ratio between the price of gold and the S&P 500 has never been this wide. A reversion to the mean, whereby gold strengthens and/ or the S&P 500 weakens, could be inevitable.

- This market uncertainty is emanating from China…

“China’s stock exchanges closed for the day [thursday] at 9:59 a.m. local time after the CSI 300 Index fell more than 7 percent. The selloff was sparked after the central bank cuts its yuan reference rate by the most since August. China's foreign reserves dropped by a record $108 billion in December as its defense of the yuan becomes more costly.” - Thursday’s Bloomberg: Forward Guidance

- But…

“The global panic has eased for the moment as the Chinese authorities eased their restriction on selling shares on the equity markets there in the mainland, allowing the market to clear… for the moment at least… and in that clearing has relieved the panic pressures that were mounting so swiftly earlier this week.” - The Gartmen Letter [friday]

- Now for the opportunity

(XRC: $0.55) - Exeter has one of the largest undeveloped gold projects worldwide. Caspiche is in the mining friendly jurisdiction of Chile and they recently found water near the project which they are currently permitting. They have a significant cash position of US$24 million dollars and have stopped studies on Caspiche to reduce their burn rate. This group previously sold Extorre to Yamana, so there’s a history here of capturing value for shareholders. Exeter represents fantastic leverage to the price of gold.

(IVN: 0.60) - Indiscriminate selling from funds and retail investors has led to a confusing valuation. Since Ivanhoe’s IPO in 2012 there have been quarterly releases of escrowed shares that have dramatically impacted the share price. The final batch of shares will be released on January 23rd. Ivanhoe Mines is valued far under its cash right now - this opportunity may not be around forever.

“Time is your friend; impulse is your enemy.” - Jack Bogle

Riley Skinner
Investment Advisor
HAYWOOD SECURITIES INC.

604-697-6178

The above article was written by Riley Skinner, a registered Investment Adviser with Haywood Securities Inc., a Canadian-based independent, full‐service investment firm and member of the Canadian Investor Protection Fund. The article is for informational purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. Readers of the article are expressly cautioned to seek the advice of a registered investment advisor and other professional advisors, as applicable, regarding the appropriateness of investing in any securities or any investment strategies, including those discussed above. The information contained in the reports have been compiled from sources Haywood believes are reliable; however, Haywood makes no guarantee, representation or warranty, expressed or implied, as to such information’s accuracy or completeness. The views expressed are those of the author and not necessarily Haywood Securities Inc. All opinions and estimates contained in the reports are based on assumptions the author believes to be reasonable as of the dates of the reports but are subject to change without notice. Either the author, Haywood Securities Inc. or its employees may from time to time hold or transact in the securities mentioned. He can be reached at 604-697-6178 or rskinner@haywood.com

Riley Skinner

Riley Skinner, 26, is an Investment Advisor at Haywood Securities in Vancouver, Canada. He can be reached at rskinner@haywood.com or 604-697-6178. More →

rskinner@haywood.com

Riley Skinner

Riley Skinner, 26, is an Investment Advisor at Haywood Securities in Vancouver, Canada. He can be reached at rskinner@haywood.com or 604-697-6178. More →

rskinner@haywood.com

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