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Synopsis:
A rare interview with the world's most successful
resource explorers reveals valuable investment insights.
Ron Netolitzky, Bob Quartermain, Duane Poliquin, Ron Parratt, Ross Beaty, Jim O'Rourke
We're switching to video this week, as our video
team has produced one of the Explorers' League panel
I moderated at the Cambridge House Vancouver investment conference held in
January. This was a great panel, with lots of valuable information and
guidance passed along by some of the most successful mineral explorers in the
world. The consistency of thought across such a diverse panel on subjects
like political risk was quite striking. We don't want their comments on our markets
today to get stale, so we're sharing the video with you now. Doug and I will
be back next week.
Thanks for reading and best wishes,
Sincerely,
Louis James
 
Senior Metals Investment Strategist
Casey Research
[4% of the people in natural resource exploration
generate 64% of the profits. Discover how to find that 4%.]
Explorers' League - The World's Most Successful Resource Explorers from Casey Research on Vimeo.
TRANSCRIPT
Hosted by Louis James, Chief Metals and Mining
Investment Strategist, Cambridge House Vancouver Investment Conference
L: Thank you very much again for coming down. Welcome. Explorers' League
panel. As you may or may not know… how many people are subscribers? So
mostly subscribers…. So, for those few of you who don't know, the
Explorers' League is Casey Research's way of honoring what we call the
serially successful explorers in our business: the people who have found not
just one economic mine but several, multiple times and mines on a scale that
really matter, a million ounces plus of gold equivalent or better. So these
guys are mine finders – a company by that name just got bought, but
these are the guys that actually do it or have done it several times over.
We've got Ron Netolitzky, we've got Bob Quartermain, we've got Duane Poliquin,
and if I've got my heads right here, we've got Ron Parratt,
Ross Beaty, and Jim O'Rourke, who just built the
Copper Mountain Mine. That's your fifth mine, Jim?
Jim O'Rourke: Pardon?
L: Copper Mountain is your fifth mine? You've lost track, you've built so
many… fifth or sixth. Is it sixth? All right, onto the seventh in Gold
Mountain. So anyway, these are the guys who have done it. These guys are, in
our view, the best in the business. We are always having our doors open when
they have a story to tell us, when they have a new project coming, we're all
ears, because these are the guys who know how to get it done and have done so
repeatedly. So, I guess, we'll just go down the row a little bit and take it
one tranche at a time. Ron, if you can tell us what are you working on now,
what's happening now that you're most keen to discuss and bring to people's
attention, and we'll go back the other direction and talk about what's coming
next.
Ron Netolitzky: My main work has been an "instant success"
called Golden Band where we finally started pouring some gold; and now I'm
hoping I can get away from operations and engineering and do what I really
want to do in the belt, which is explore it for the deposits I haven't found
or our guys haven't found. So that's the main thing. I'm watching northwest
BC; I think it's exciting. We worked a bit in the Yukon through a company
called Aben last year, and we were one of the few
guys who at least had a drill success, but the market never appreciates it. I
don't think anybody made any money on Yukon stocks last year unless you sold
early.
L: Wait: before you give up the mic, tell us a
little bit more about Golden Band – the symbol's GBN. It was an
agglomeration story. You had all these satellite deposits. You’ve got
an old mill for a dollar or something like that, and you put it all together.
Ron: Yes, it was a story that basically I got involved in the La Ronge Gold Belt in the early '60s for an oil company, so
I kind of knew it was there. And then I got into the uranium business, and
then 1977 came along, Three Mile Island came along, and the next week, my
consulting business wasn't looking so hot anymore, so I started staking
claims in the La Ronge Gold Belt. They ended up in
a lot of joint ventures, a lot of other companies, one that disappeared off
the board called Golden Rule. It got salted in Ghana – well after I
left. And we got back into the La Ronge Gold Belt
about 1994 with an associated mine called Komis.
Klaus Lehnert-Thiel is VP of exploration, and it's
his till techniques that allowed us to find a whole bunch of new deposits and
new discoveries. And we're continuing with that game, and right now we're
mining one that's unusual, and there are some samples at my booth called the
EP Zone and we've got about 7,000 ounces in the glacial till running around
12 grams, so we're now just mining into the source of that, and it's
definitely supergene enriched with chalcocite and native copper, which you
aren't supposed to get in the Shield, and the grade of that is getting
– probably going to approach an ounce, and then we'll get into some
primary ore, but that whole thing was supposed to be 9,000 ounces, and I
think at the start of the pit we've already probably got 9,000 ounces on the
stockpile, so it's been a lot of fun.
L: Very good. So if you're moving on from the engineering, then I
guess… you'll let us know when is the next Ron Netolitzky
play for us to get involved in?
Ron: Well, I think the next play is the same company. I think I got some
excellent expiration targets to maybe find the deposits that are going to
give the belt some respect. I think there's natural evidence of a lot of bulk
mineable targets there that people haven't worried about and definitely we
have proven that – and history has proven there are lots of small,
high-grade narrow-vein systems there. But I think there's opportunity for
bigger deposits – low grade – that could be exciting. I am
playing in northern BC, but frankly, I'm after a property. Until I get it, I
wouldn't bring anybody else in because it's somebody I consider a little
haywire that controls it.
L: All right. Bob, everybody here probably knows or has heard about the Pretium story. We gave you an award – a Best of
Show award – so I don't want to repeat ourselves too much, but we got a
question this morning maybe you can take on. The stock is trading at its
all-time high. I mean it's a new stock, but still it's trading at its 52-week
high, all-time high, whatever you want to call it. Can you persuade us that
this is a good time to buy, or should we wait for a correction or what
happens next with Pretium? Is there enough value
added in the very-near term that it makes sense to buy Pretium
at $16 right now?
Bob Quartermain: Right. As you know, I came out of retirement last
year to take on the Pretium opportunity; and we did
it on the thesis that there would be a high-grade gold opportunity sitting in
the much larger bulk tonnage mineralization. When you think about it, today
we've outlined North America's second-largest gold resource, 38 million
ounces of measured Indicated resources, another 28 million ounces of
Inferred, and within that we have now got about 8 million tonnes
of mature running between 19 and 20 grams for about 5 million ounces. That
continues to be open in all directions. It's open down dip, it's open along
strike, and certain open at depth, and so there is still an opportunity there
to add to the ounces identified to date. There is a lot of catalyst coming
out this year in this quarter. We are going to complete a preliminary
economic study on the high grade. The one we did in June last year was based
off last year's resource, not this year's resource. We expect to have that
this quarter. We are currently de-watering underground, and we've got a
permit in place to actually drive a development expiration added from the Old
West zone across into the Valley of the Kings. We'll have an updated PEA also
on a bulk tonnage opportunity, because this is what
we think is an "Osisko." Besides the very
high-grade material, which sits within 1- to 2-gram
material around it. We did a flow-through [financing] we announced the
other day, so we've got the money to go back and we will be drilling
aggressively, not only expanding on the resource but also doing in-field
drilling, so we can move it on and complete a feasibility study by the end of
this year. So throughout the year, there are going to be a lot of data points
coming up, particularly starting in this quarter, and so I guess I would say,
"I still own all my stock, and I'm not a seller."
L: Just one more question. This was discovered in Silver Standard. When
you were there at Silver Standard, did you know it was going to get this big?
Did you have a feeling like, "Yeah, this is it," or how much luck
is involved here?
Bob: Largely luck. When I retired from Silver Standard in 2010, there was
only a small resource at Bruce Jack, and there were a couple of drill holes
that had hit some higher-grade material, and it was over the summer of 2010
that they drilled and then had a few more hits, and one of the drill samples
had run a couple of kilos of gold, and I had only ever seen that type of
mineralization either at the Royal Ontario Museum or when I worked at Red
Lake, and felt if there is an opportunity like that here, then I'd like to
have the opportunity to explore it – because like Ron, after doing
Silver Standard for 25 years, it's good to be back sitting on the drill rigs.
I was up there in the camp this summer, continued to do sections in the
office, and so, no, it's – when Don McCloud at New Hawk did it, this
was a blind deposit. They never saw it. No surface expression. It was just us
methodically drilling every 50 and 100 meters. We lucked into the high-grade
gold, and now we really know where to focus our drilling.
L: Very good. Duane, we've had a lot of questions about Almaden, and Ixtaca zone
started out so sexy and exciting, but then it seems you're still hitting
drill results but not quite the ones we had earlier on. Tell us a little bit
about Almaden in general and about Ixtaca. What happens next and –
Duane Poliquin: What we've been doing for a number of years is, let
me start – if you take Nevada, in western Nevada is the Comstock lode,
which was discovered early, and then the tectonic plate that's shoving under
North America, on the leading edge of that, you get copper-gold porphyries
like Bingham Canyon, and you get all the Carlin-type stuff. And so we kind of
applied that idea to Mexico, and over a period of years we took a helicopter
– my son all the time and me with him as much as possible – and
we sampled every intrusive center in eastern Mexico and every volcanic center
from the American border clear down to Guatemala, and we have information the
Mexican government doesn't have. We age-dated all of those. We did whole-rock
analysis, and we got a geological understanding of the eastern half of
Mexico. We started staking claims, and part of it was there is no competition
there. There's not even any claims, so we acquired
things like Caballo Blanco that had never had a
claim on it before. It's not on any government map, and we found a gold
deposit, which we've sold to a gold group, and we found a
nice copper/gold porphyry that we're just doing a Titan-24 survey on
right now, but it's shaping up very nicely. Then inland from that a little
ways, we found this Ixtaca zone, which also came
out of that study, and again never had a claim on it before. It is a
brand-new discovery. The only reason it's still there is it's covered with a
thin veneer of volcanic ash from some volcanoes about 90 miles west of there,
so there's a little outcrop the size of this table in a creek with some
little, tiny veins that have epithermal texture in them, so I'm quite proud
of that discovery. We're drilling it right now, and I wouldn't agree with you
that the results aren't as good. We think they're damn good results and they
keep coming, and every hole we step out it's there, and so we're just going
to keep – we've got four drills there working right now.
L: I didn't say they weren't good, but we had some, let's just say, more
exciting results earlier on.
Duane: Well, stay tuned. We've got four drills there right now, and it's
going to keep coming. And there are going to be more, because we've staked a
whole bunch of things in this belt. We've got two other copper/gold
porphyries staked that we haven't had time to get to. We've got a bunch of
other epithermal things with silver numbers, gold numbers on the surface. We
just haven't had time to get to it yet. We'll drill this one off, and then
we'll go down the belt.
L: Before you pass the mic on, let me ask about
Gold Mountain, because some of our readers – because of the potential
conflict of interest internally we haven't recommended it, we haven't said
anything about Gold Mountain, though obviously we always love the Elk
deposit. Both of you here –
Duane: Well, we're both here. Jim is –
L: Who's running the show? Who's going to make Gold Mountain happen? He's
busy perfecting a mine…
Duane: Jim has just hired somebody to run the show, I think. He'll tell you.
Do you want to tell him about that, Jim? Okay. Well, they did some drilling
last summer, which I was quite delighted with, because we had never chased it
into the volcanics, and they chased the zone into
the volcanics and got some really nice numbers
across underground mining widths and chased it about 400 meters into the volcanics. Everything else was in these vein swarms in
the intrusive. So it's developing nicely, and Jim's the mining guy, which
we're very delighted to be in with.
L: Jim's going to build out, but you're still going to have – you
have an equity position?
Duane: We have a large equity.
L: Do you have a lot of input on the exploration?
Duane: Yes, indeed.
L: That's what I want to hear because you guys are my favorites.
Duane: We're still there. Morgan is still there. Morgan is on the board of
directors.
L: Okay, Ron, so you already did a talk about Nevada. People probably
don't need you to do the whole story over again, but bring us up to date on
what's going on with Renaissance and what happens next.
Ron Parratt: Sure. Well, as many of you probably know, we're now
about a year out on the spinout of Renaissance from AuEx.
We had some good success there up in northeastern Nevada, a brand-new
discovery, actually a new district of Carlin-type gold mineralization ended
up in a 51-49 joint venture with Fronteer. They
bought us, and three months later Newmont bought them for a couple billion
dollars. It was quite a nice deal. Within three days of closing the deal with
Fronteer, we did the spinout of Renaissance, the
same team of people, almost all of the properties we had. Fronteer
was only allowed to take the Pequop District
properties, and we've been doing the same thing. We think the business model
works very well. We are focused on continuing at that. We're going to be very disciplined in our business approach, as we had been
before – use other people's money, leverage the risk out, minimize
dilution, and get to discovery. We've got 30 projects we are working on now;
10 of those are in joint ventures. We drilled seven last year – Newmont,
Sumitomo, Agnico, Eldorado, and some juniors,
so a good program. You've got to be out drilling holes, taking swings with
the bat to have success, so that's a great focus for us, and we will do more
this year, and hopefully we will get to meaningful discovery as soon as we
can.
L: How many projects are you going to drill this year?
Ron: Well, as I said, we did seven this year. I know now that we'll be
drilling three in the first quarter of this year, two in Argentina, and we'll
be starting probably a six-month drilling program at our silver property in
western Nevada with Liberty Silver. We know that the Wood Hills results are
good enough. None of this is out yet, but they're good enough that our
partners are going to be back with a bigger program there. Sumitomo is
already committed to a bigger program at Spruce Mountain. We're running that
program… Early yet in the year for everybody else, but I'm sure we're
going to do a fair bit more this year than we did last year.
L: All right. This might be also a question for Ross, but Argentina
– as you know we got pretty cold feet about mineral investing in that
country. I noticed that the Rio Negro province just re-legalized gold mining
– that was a good thing. Do you want to tell us a little bit about your
sense of the political risk in Argentina? You're quite welcome to disagree
with the Casey consensus there, but tell us what you think.
Ron: Well, we went to the Santa Cruz province first of all because of the
endowment. We think it's a great place to explore and that you can find gold
there. It's not a stretch. You look at the epithermal systems. That area is
very early in its exploration history. We see a lot of upside. Obviously
there is some political risk. The assessment of the recent change by Cristina
looks as though it's not going to be as great as everybody thought to begin
with. Given that it's Argentina, I think people are going to figure out how
to make it even less as time goes on. We don't see any diminishment of
interest by potential partners for our properties down there. I attended an event
in Toronto a couple of months ago on Santa Cruz proper through Macquarie.
Great turnout, great interest. We're still very bullish on the area, and we
are going to continue working down there.
L: All right. Well, Ross, we could probably do a panel just with you.
We've got Magma, we've got Pan American, we've got
all these different things going on, so I guess start out with your babies,
your sweethearts. What are the sweet spots right now? If you're speaking to
an investor who wants to get in on a Ross Beaty
play, what two or three things would you tell him to focus on right
now?
Ross Beaty: I would tell him to buy a portfolio of companies
held by these guys, and they're going to be rich beyond avarice. If you'd
done that three years ago, you'd have made a better
investment than any other investment portfolio in this entire building.
L: That's actually true. If you did the numbers…
Ross: Yes. This is a very smart thing for you to do with a lot of these
guys' companies. Bob has had the best-performing gold stock in the world in
2011 – I had the best-performing copper stock in the world in 2011.
These are exploration discoveries, and that's what we do well. So, you know,
it's a nice – and of course Ron had a fantastic home run in Nevada just
a couple of years ago, a mature exploration district, and what did those guys
do? They found an entire new gold district in the most heavily explored
region in the entire world, right under the nose of all the majors, and
Newmont had to come along and pay $2.5 billion to buy it from him. That's
wealth creation by any measure, and it's wealth
creation because he's a really, really good geologist, and Mark O'Dea is a
really, really good geologist, and that's what makes the discoveries. So, buy
the geological talent and listen to guys like Casey who follow these
companies and find these guys. The NexTen is
another group of smart guys out there, finding the opportunities under the
nose of the majors and making their shareholders a ton of money. So, that's
what I would do.
L: Okay, well, give us a stock pick here. Lumina is
up…
Ross: So my little portfolio is a bit of a – it's a mixed bag. On one
hand, you have a large, mature company like Pan American Silver that is a
play on silver and that's going to go up or down depending on what happens to
the metal commodity, really, because it is a big company – it trades
$100 million of stock a day. This morning we just bought Minefinders
for $1.5 billion, and I never thought in my remotest dream I'd ever be buying
another company for $1.5 billion. It seems ridiculous, but you know what?
It's going to make a much better, stronger company. It's a stable blue chip,
second-largest silver producer in the world, primary producer in the world.
It just doesn't have the wild swings that you're going to see with explorers.
So that's at one end. On the other end, I guess, the two companies that I
have that are exploration companies – one is called Anfield
Nickel, and it's a nickel exploration stock in Guatemala, but even that is
fairly mature because we're trying to sell it now. I mean, right now, we're
trying to sell the company this year and the largest value added is behind
us, so I wouldn't really recommend that particularly as an exploration stock
to follow.
You could have asked me the same question that you
asked Bob on Pretium with respect to Lumina Copper,
which is a copper exploration project in Argentina which I thought had almost
no value two years ago and now it's – I think maybe we can sell it this
year for more than $1 billion. It is currently capitalized at about $580
million, so is it too late to buy it? They had an incredible run last year.
The stock chart looks like a hockey stick. It actually looks like the
accumulation of carbon in the atmosphere over the last thousand years. Kind of…
that's what the stock looks like.
So it's done very well, but it's trading at $13 and
change today, and we think we'll be able to get more than $20 a share this
year and that means it's pretty decent, relatively low-risk return for most
shareholders. It's got very little downside, and it could maybe not double
but come close to doubling. That's this year. So it's a decent return there,
and that's a discovery story. That's pure and simple where luck, I think, has
played a huge, huge part.
We had a property in Argentina that we didn't think
had much value. We called it the "ugly duckling" of a group of a
whole bunch of copper deposits that we sold off over the last few years. Then
we just all of a sudden started drilling holes in the right place, and we hit
some fabulous copper results, high-grade, clean, huge.
I mean everything that the major companies want to buy, and as the year went
on, it just got bigger and better, and we're still drilling fabulous holes.
We got seven drills going on the property. It's going to be – well, it
was the biggest discovery of the year in the world last year for copper.
There is lots of room for it to continue to grow, but ultimately the game
plan is to sell it to a major, and we hope that will happen this year.
And then, in the sort of middle, my main focus this
year isn't an exploration stock at all. It's not even a mining or mineral
commodities stock, it's a clean-energy stock called Alterra
Power, the merger between Magma Energy that I started a few years ago and
Plutonic Power. Alterra Power for me is kind of
like a legacy company. I'm really trying to build it into a huge clean-energy
company because I think it's good for the world, it's good for my kids, and
if I can do good things and make a buck at it and make a good investment case
for a company that has appreciating value over time, I'm going to make my
shareholders happy as well. So that's my main focus today. We are over the
hump. We are a sustainable business now. We've got about $55 million per year
of cash generation forever. Forever. This is not a depleting business. Once
you build these clean-energy plants from wind or hydro or geothermal power,
they go forever, which is an absolutely beautiful thing in contrast to
mining, which is a depleting industry. So that's what I'm doing today.
Louis: Sorry. You're the broken slot machine. Where's the early pick? Where's
the early-stage, you know, Anfield before it went
up, Ventana before it went up, Lumina before it
went up – is there one out there? Is there an early-stage Ross play?
Ross: Well, yes, but it's not really ready – it's not there being
packaged for public company or for third-party investors.
L: We won't tell, right, guys? We won't tell.
Ross: Yes. So just watch this space. There you go.
L: Watch this space. Then duly program your Google News things to track
the name "Ross Beaty." Okay, Jimmy, you
built Copper Mountain. What next?
Jim: Well, I think a lot of you had an opportunity to go up there and see
it on Saturday; and as you can see, we're a fairly new company. We went
public in 2007, and I think, as Ross says, there was
a lot of value added through the exploration. Currently our market cap's
around $600 million, and we're just getting started
as a producer. The mine now is fully operational. Our intent is to optimize
it in the next few months, maximize our production, and demonstrate
performance.
With regard to the exploration aspects, which we
seem to be talking about – and I'm not an explorationist
– but the property does have some excellent targets. We've got a very
large property, about 18,000 acres, and we have about 5 billion pounds of
resource right now and we believe as we drill some of our Titan-24 anomalies,
this is going to increase. I guess lastly we see ourselves as having a very
strong base for a growth company as a copper company and precious metals
– about 20% of our value in sales right now is precious metals. So it's
our intent to continue to grow the company through exploration, through doing
joint ventures with guys who really are successful in finding properties at
an early stage, and then also looking at mergers and acquisitions that would
help our shareholder value.
L: What about the Voigt zone? I remember when we were up there before you
built the plant and I was talking, all this copper is great, but I'm worried
about copper… what about precious metals, and there were these drill
holes in this area called the Voigt zone, just a couple, that suggested you
might have a more gold-rich center there. Have we tested that? What's up with
that?
Jim: I know, Louis has been pushing me in this direction forever, and this
year we did put some drill holes in there. It was thought to be a fairly
narrow zone, but there is a very large Titan-24 anomaly there, but they have
drilled some of the areas and they did get good gold results. And as I've
said, I'm not a geologist, so I can't give you the details right now but we
did publish them.
L: Follow-up this year?
Jim: Pardon?
L: Will there be follow-up this year?
Jim: Yes. It will be followed up. Definitely.
L: Yes. It would be very nice to see a much brighter gold lining to the
story there. I mean good insurance. Okay, I can think of lots of questions I
can ask these guys all day. I know their projects pretty well, but it's a
rare chance when you get to pick the brains of the best in the business, and
here they are, so while you're here, do you have any questions? Does anybody
want to – yes, sir?
Ross: So the question was – Pan American Silver has a huge deposit in
Argentina called Navidad. It's the largest undeveloped
silver deposit in the world, so it's really, really big – and the
question is what's going on, and is it going to be developable because it's
in a province of Argentina that banned open-pit mining and the use of cyanide
about eight years ago. They kind of swept the baby out with the bathwater
because there was a gold deposit in the mountains in a really beautiful area.
They didn't want to mine that, so they said the whole province is off the
territory for mining. So this deposit was then discovered. It's in the middle
of nowhere. It's in a very nice, empty part of this Patagonian plain of
Argentina, and it's a huge deposit. There's more than a billion ounces of
silver, clean. It's right on surface. It's a beautiful, beautiful ore body,
and it'll double Pan American Silver's production from 24 million ounces to
48 million ounces in, say, three years. The province, as Louis just said, the
province just north of this particular province of Chubut is called Rio
Negro. They also had a ban on the use of cyanide and mining, and they just
overturned that in December – at the end of December – so what we
expect will happen is in March this year, the government of Chubut has
written a new law that's going to zone the province into places that you can
mine and places you can't mine. The mountains will be no mining, right along
the ocean will be no mining, and the center would be pro-mining. We've seen
the law. The governor assures us it will be passed. There are some processes
to go through, but we think it will happen in March, and that will open the
way for development of Navidad. That will be a real
game-changer for us.
L: We've seen laws like this before. The Santa Cruz province where Ron's
operating, they also did something like this where they set out an area that
was specifically "miners welcome here," and it happens to be where
Ron is operating on the Deseado Massif. So there is
precedent there. Okay, more questions. The question was, we've heard about
going south into Latin America and the idea of the lower-hanging fruit having
been picked and having to go farther afield to look for big, world-class
deposits; are you guys doing that? Are any of you looking to go into what
might have previously been regarded as too risky or not worth the trouble?
Where are the new frontiers, and is anybody taking them on? Ron?
Ron Netolitzky: I think I'm coming to the conclusion that I'm liking working where the jurisdictions are as safe as
I can get at my age. I mean you have enough exploration risk in this world to
take on excessive political risk. Now, if there's a wonderful deposit that's
already been identified, then you can look at it and say you play it from the
political risk because you've got no exploration risks, but taking both on
– not for me.
Bob: Well, we're in British Columbia and although some people think there's
risk around that, we think it'd be mitigated. Projects have been developed
here, with what Jim's just done, so projects get permitted in development
here, and I'm a bit like Ron nowadays… keeping my focus a little closer
to home.
Duane: Well, as I described earlier, we went into Eastern Mexico where we had
no competition. Many of the things we've staked never had a claim on it
before, and we're getting incredible assays, and two things are already obvious
– one going to be a mine and one that we think will be a mine and we're
just getting started in that area, but the other frontier is depth. You look
at the Hudson Bay Mining in Flin Flon, Manitoba. They were mining there for 80 years, and
they just found as big a zone, not just found, but a few years ago, found as
big a zone as they had mined for 80 years underneath, straight below. I mean
they're mining stuff that's 4% copper and 7% zinc and a quarter-ounce gold,
and it's underneath, so there's going to be a lot of exploration to depth.
There are these new techniques where you can see deeper with geophysics, and
in old areas where there are lots of mines, people are going to go down to
depth. Look at Pebble, the discovery at depth, and look at Oyu Tolgoi. There's going to be
more exploration to depth in old, established areas.
Ron Parratt: Our company – in addition to Argentina and of
course Nevada, we're working in Spain. So far, we've found the political
environment to be reasonable. Things don't happen quite as quickly as we
want, but we do have worries about obviously the Spanish economy, problems in
Portugal, all over Europe right now. And it seems to me that people are just
afraid to make decisions because all the government employees don't want to
lose their jobs, and if they make a decision and approve a project or grant a
license, they worry that the next group coming in will hold them at fault for
that, and they'll lose their jobs and they don't want to lose their
government jobs. You have to be pretty careful.
If it's in Argentina, some provinces, as you've just
heard, are good to be in; some are not so good to be in. I work a lot in the
US; I would not work in California. There are other states I'm not going to
go to. You have to pick your battles pretty carefully. I agree with Ron.
Exploration is really risky, and if you risk losing the asset you might find
on top of the discovery risk, you really need to ask yourself if that's the
right thing to do, so we're going to stick with the countries we are in now.
We'll stay in the Americas. I think Mexico would be okay, but as a small
junior company we can't be working in too many countries. I think we'll lose
focus, and I think that'll be a bad thing.
Ross: I look at this question really from the standpoint of standing in your
shoes as an investor, and I guess my bottom line to this is, don't put all
your eggs in one basket. Diversify your risks. Don't buy one company, buy a
handful of companies. Don't invest in exploration in one country,
invest in a pile of countries, because you just never know. There are so many
risks in this game – not just geologic risk or mining risk but
political risk, social risk, environmental risk, stupid risk that just makes
no sense to anybody – but it happens and it just happens all the time.
Australia – once thought to be the safest, best, lowest-tax
jurisdiction – a few years ago brought in an absolutely idiotic, insane
super province tax that destroyed Australia as a good place to do business.
Luckily, the industry had such a big lobby power that they were able to stop
the government from doing that, but BC, just a short eight or nine years ago,
we had a bunch of socialists running this place, and they made a mess of it.
They made an absolute mess of it. It was a horrible place to explore because
they didn't give you any value. So things can change really quickly, and you
just – you can be awfully clever about assessing a risk regime in terms
of political and social environmental risk, but crazy things happen.
And so for me, I'm invested in 18 countries right
now; and I happen to know every single year there's going to be one that is
just absolutely wonderful beyond my expectations, and there's going to be one
that's just a nightmare – again, beyond my expectations. The other
principle I have, though, is "Life is too short." And that means
don't go to places that are just pathologically criminal like Russia and most
of the CIS. Both Bob Quartermain and I have joint
experience in that. There are some parts of the world that are just
super-tough that are, you know, no matter what the opportunity, it's just not
worth the effort, and I put sort of Venezuela today in that category, quite
frankly Bolivia, maybe Ecuador, places like that, certain countries in
Africa, anywhere in the CIS. Life's too short. It doesn't matter what the
reward. If you have to deal with criminals and people are trying to steal
from you every single second, it's just not worth it.
Jim: Well, I think I have to agree with Ron and Ross in that, number one, of
course, you've got a lot of risk, and I guess you have to weigh the political
risk. If you had a fantastic deposit, you'd probably take a little more
political risk, but I think as Ross said, I'm of an age too where I'm not
going to venture out too far, and I don't have a bulletproof jacket, so I'm
not going to take a lot of risk in terms of going to places where you don't
know whether you really own anything or whether you can hold it or if
somebody is going to take it, so I'm along that line too.
L: This is very, very interesting. Jimmy, I put you a little bit on the
spot there because of where you're focused, but I wanted to see if I could
get unanimity, and basically we got unanimity. These are the most successful,
best brains in the business and this conventional – it's become almost
conventional wisdom that the low-hanging fruit has been picked. We've got to
go farther afield, and we have unanimity here saying, "You know what?
Life's too short. Go where you know you can work," so that's something
– it would be interesting to ask the same question at the NexTen panel and see if slightly darker average color of
hair would give the same unanimous response. But no, that's very interesting.
Words from the wise.
Okay, I think we have time for maybe one more
question. Copper. Maybe a real quick two sentences, thumbs up/thumbs down on
copper. You know, we have the bearish argument near-term about economic
trouble. Doug Casey is talking about the Greater Depression and all these
things, obviously bearish for industrial metals. We've got two copper
producers sitting here. Obviously you want to be optimistic about copper
– the world needs it. Chindia, all these
things. Ron Netolitzky, just a quick take. Are you
– long-term we're all bulls on copper because we know the world needs
it, but near-term, this year – are you buying copper plays and would
you?
Ron Netolitzky: I would look at any mineral. I think they all have
their opportunities, and in this business I'm not short-term cycled. I mean,
when everything comes out of favor, it's actually a great time to start
playing in it, and you've got to be really contra-cyclic. We all pretend to
be, but it's a hard decision to make because when everybody hates it is when
you should love it.
Bob: Right, and I go to a comment that Ross made earlier about buying
people around the table. I'm a Lumina shareholder, and I'm a very happy
Lumina shareholder and I'm adding it to my position because of the
exploration upside that's there. Same as my own company. I've owned Ron's companies,
I've owned Duane's companies as well as Ross's, and so long-term I continue
to be very bullish on copper and continue to own it in my portfolio, both
major companies as well as members sitting around this table. Same with
uranium. I'm with Ron on this. I think now is the time to be out there buying
and I don't think you need to be concerned about what happens this year. If
you're doing that, then you really have to look at exploration as a very
long-term gain. With Ross I started investing in silver back in 1993-94. That
has served me very well, and I'll continue to invest in the people around
this table and the commodities that they're looking for, and I think that's a
strategy that I'd follow.
Duane: In the short term, you know, everybody
– just open the paper or watch the television. Every government in the
world is in debt, and they can't pay them, and there's all this mess, but you
know what – the world isn't going to end. I mean even the '30s, which
was so terrible, it came to an end and life went on, and a lot of good life
went on, so in the short term, I think precious metals are a good place to be
because they've got to settle their debts, and they've got to do something,
and they've got to make people believe in money again, and so on. So I think
precious metals in the short term are a very good place to be, but there used
to be an old expression, "Copper is king," and copper is the main
metal of civilization, and it will go on and on and on, and as all these
things get sorted out and human ingenuity and despite governments, things
will be good, so long term I think copper is a great thing.
Ron Parratt: I certainly agree with Duane. I think a lot of the
exploration plays we're looking at now are of course copper for the future.
These aren't going to come out of the ground this year. We're looking at two,
three, four years away, depending on the municipality that they're located
in, so I think, really, you need to be thinking about the longer-term price
environment and of course it's very deposit-specific. Each commodity has a
range of production costs by commodity. You always want to try to look at
those in the lower-cost curve position that are going to be sustainable
long-term. They're the ones that are going to do well, and especially if
prices go down and you're a lower-quartile producer, you're going to have a
good company.
L: Ross, I'm a little bit nervous about giving you a chance.
Ross: Okay, so here's my pitch. So how many of you were at the Casey
conference – where was it? – it was in
Phoenix last November, October?
L: Yes, October.
Ross: So there's a Casey conference in October. Were any of you there? A
handful. So here was a room – now October, I admit, was kind of a bleak
time. There were a lot of European governments looking pretty iffy, and there
was a lot of doom and gloom in the US still, of course there always is when
you get a group of Casey investors together. I mean the whole bloody
conference is all about, "What are we going to buy when everything melts
down? We're going to buy guns and drugs so we can sell them." It was
like one of these, you know – I mean, take a happy pill. That's kind of
what I felt, and I was the only voice of optimism.
L: This is true; true story.
Ross: The only voice, and here we are in January,
things are looking better. Copper price is up, gold price is up, silver price
is up – you know what, Europe is going to live, it's not going to die,
and we are not going into a vortex of hell, financial hell – we just
aren't – and I think Duane's comment is valid. Every day there are more
people who are born, we all want junk, there are more people getting into a
monetary system coming from farms into cities, more people with more money
means more people want junk, junk means commodities, commodities are what we
produce and discover.
So there are two sides to this copper coin. There is
the demand side. Demand is strong for copper. It is being driven by all these
new people in the world, the new monetary or the new people who have money in
the world in India, in Indonesia, in China and Brazil and Russia and all
kinds of huge population areas – forget about Europe. Who cares about
Europe? In copper on the demand side, Europe is a non-event. It doesn't
matter – even the US.
The US today, nothing in the US drives copper
demand. Copper demand is driven by what's happening in the emerging
countries, and it's going crazy there. Copper demand in China went up 8% last
year. The world built more automobiles last year than they've even built in
history – I forget the number, but it was a record number of cars, and
cars today use more copper than they have ever used before because there is
more want, more need for, motors in the cars, there are more hybrid cars.
They just use more copper, so the demand side of copper is fantastic. It's
not going to melt down, it's good, it's strong. But
what a lot of these pundits who even know the demand side don't understand
is, on the copper supply side, it's equally bullish. We aren't finding as
much copper as we're mining. We aren't finding it because the big deposits
have been discovered. The new deposits are harder to find. They're not as
big. They're not as rich. You can't see it from a satellite by and large like
you used to. These are big, big deposits, and we are just not replacing
consumption as much, and long term that's just as bullish for higher copper
prices as increased demand. Now, of course it's not going to go up forever.
At some point, there's going to be a price that people are going to stop
consuming it or finding replacements, and they are going to start mining some
of these really, really low-grade deposits of which there are a number in the
world. But just to mine those takes five to ten
years of permitting and financing and construction. Construction costs have
gone off the chart, so mines are harder to build today, they're harder to
permit, they're much harder to discover. If you look at a chart –
there's a very cool chart that a group called the Mineral Economics Group has
put out, which charts exploration expenditures for copper against discovery
rates. It's an inverse curve. The more we're spending on copper exploration
in the last 10 years, the less we're actually finding. The existing mines are
becoming lower grade. They are becoming deeper. They're becoming more
high-cost. The only way that supply equation can be matched with the
increased demand is with higher prices, so I am bullish on copper for both of
those reasons.
Jim: I don't think I can add anything to that, but I do agree, I mean, long-term
we have the demand. We have a shortage of supply. It's going to be difficult
to meet the difference, but also the cost of production. I mean, as the costs
of production go up, the price has to be there, or else we're not going to
have copper, so I have to be bullish on copper, and I feel very fortunate
that we're in production at this time to enjoy the future.
L: Okay, with that, I think we better take a break. In 10 minutes, Jeff Clark
will be back here to tell us about buying and owning gold and silver. Thank
you very much. Gentleman, thank you very much – a great panel.
Finding Upside in a Natural Gas
Downturn
mardi 28 février 2012, 23:51:13
Synopsis:
America's natural-gas glut has created surprising
opportunities for energy investors.
By Marin Katusa, Chief
Energy Investment Strategist
The energy market is a complex beast, its many parts
interconnected through a multitude of linkages. When one part fails, the
entire system reacts: certain linkages are burdened with extra stress, while
other components sit idle. Only by studying the entire machine can one
understand the rippling effects that stem from one change.
With the energy market, the system is made up of
various sectors – oil, natural gas, uranium, coal, and alternative
energies – and the countries that have each of those energy resources.
The components are then linked through a long line of forces, including the
geographic distributions of supply and demand, international allegiances and
trade deals, global markets and commodity prices, and the ever-evolving field
of international relations. A change in any country, sector, or linkage
resonates through the entire system.
From this perspective, North America's shale gas
revolution truly earns its accolade as a "game changer." As many
people now understand, the boom in natural gas reserves and production in the
United States and Canada is changing the way North America will power itself
in the future.
What a lot of people do not understand is how to
profit from this shift.
Natural gas prices are depressed and expected to
remain so for the short to medium term, so investing in natural gas options
or a natural gas exchange-traded fund is not likely to bring home the big
bucks anytime soon. Domestic natural gas equities are an even riskier idea
– most producers are scaling back production and selling assets as they
hunker down in preparation for a tough few years.
In this case, the way to profit is by understanding
how natural gas' changing role is impacting North America's energy machine as
a whole. Cheap natural gas is prompting utilities to switch from coal to gas
where possible. The confluence of cheap natural gas and a risky global
economy has droves of investors turning their backs on green energy, the
sector that was such a market darling only a few years ago. Farther down the
road, North Americans are debating – and in places implementing –
a range of strategies to take advantage of the continent's newfound abundance
of natural gas, from natural-gas-powered transport trucks to exportation of
liquefied natural gas (LNG).
Isaac Newton showed us that for every action there
is an equal and opposite reaction. That is why every downside force in the
energy sector creates upside opportunities elsewhere. The challenge is
finding them. It takes an understanding of the entire global energy machine
to figure out what areas are benefitting from the changing landscape.
For Every Down, There's an Up
Natural gas seems to know that it is heading for
several years in the doldrums and, in fighting spirit,
it is trying to take a couple of other energy sectors down with it.
With coal, it is succeeding, but there are still
lots of coal opportunities outside of the United States. With uranium, the
global supply-demand scenario and America's position within it is in such
flux right now that cheap natural gas is doing little to reduce America's
need for U3O8. Then there's the well-field services
sector, where the successes born from horizontal drilling and fracturing
created the gas supply glut that is forcing production cuts. Far from slowing
down, however, well-field service companies are busier than ever as the oil
industry adopts fracking to access shale oil, and
the deepwater Gulf of Mexico continues to test the
limits of drilling technology.
Coal
The sector feeling the worst impacts from gas'
downturn is thermal coal. Demand for the coal burned to generate power in the
US is plummeting as utilities take advantage of the cheapest natural gas in
ten years. Consumption of coal to produce electricity is expected to fall 2%
this year to its lowest level since 1992, while gas-fired consumption rises
5.6%. Making matters worse, winter heating demand is falling in the face of
mild weather: through January, this has been the warmest winter since 2006
and the fourth-warmest on record. With natural gas and warm weather
conspiring against it, coal demand is decidedly down – in the second
week of February, coal consumption was 4.3% lower than it was a year ago.
Exports are not going to provide any help. Last
year, Europe bought 50% of America's thermal coal exports, but demand from
the EU is shrinking as the region struggles to stave off a recession. The
economies of the EU shrank 0.3% in the fourth quarter of 2011 compared to the
previous quarter, the first contraction since mid-2009.
In response, US thermal coal prices are
deteriorating. Appalachian coal, the US thermal-coal benchmark, fell 15% in
January alone to sit near US$60 per tonne and has
moved little since (by comparison, Australian thermal coal is currently
fetching almost US$120 per tonne). Mining costs to
dig thermal coal out of the ground range from $60 to $75 per tonne for Central Appalachian
producers, which means margins are already razor thin or nonexistent.
Several major US thermal coal producers are reducing output and in some cases
closing mines, including Arch Coal (NYSE.ACI), Patriot Coal (NYSE.PCX), and
Alpha Natural Resources (NYSE.ANR).
Now for some good news. Thermal coal prices in the
United States may be faltering, but that doesn't mean that coal is in the
doldrums across the globe. In fact, quite the contrary: global thermal-coal
demand is expected to increase by 50% from 2008 to 2035, with the vast
majority of increased demand coming from the developing world. That equates
to a demand increase of 1.5% each year, and production is not quite expected
to keep up to that pace. Rising demand plus not-quite-enough supply equals
investment opportunities – maybe not in the US, but elsewhere.
That's just thermal coal. There's another component to
the coal world: metallurgical coal, the higher-carbon coal used to make
steel. Supplies are even tighter with metallurgical coal, which is why our
subscribers have exposure to "met coal" through either equities or
a fund. More recommendations are on the horizon: the upcoming edition of the Casey
Energy Report will be all about coal. We will provide the background,
supply and demand projections, and the best ways to profit from the global
coal sector.
Uranium
The abundance of cheap gas has utilities looking to
build more gas-fired power plants. Some observers have suggested that this
will be to the detriment of the nuclear sector in the US. But that
perspective is pretty shortsighted.
It is true that some utilities have delayed plans
for new nuclear plants by a few years, primarily in response to the Fukushima
nuclear disaster in Japan and the ensuing public backlash against uranium.
But that backlash is already fading; and those delays will have only a minimal
impact on the nuclear sector in the US. Five new generators are on track for
completion this decade, including two reactors approved just a few weeks ago
(the first new reactor approvals in the US in over 30 years). Those will add
to the 104 reactors that are already in operation around the country and
already produce 20% of the nation's power.
Those reactors will eat up 19,724 tonnes of U3O8 this year, which
represents 29% of global uranium demand. If that seems like a large amount,
it is! The US produces more nuclear power than any other country on earth,
which means it consumes more uranium that any other nation. However, decades
of declining domestic production have left the US producing only 4% of the
world's uranium.
With so little homegrown uranium, the United States
has to import more than 80% of the uranium it needs to fuel its reactors.
Thankfully, for 18 years a deal with Russia has filled that gap. The
"Megatons to Megawatts" agreement, whereby Russia downblends highly enriched uranium from nuclear warheads
to create reactor fuel, has provided the US with a steady, inexpensive source
of uranium since 1993. The problem is that the program is coming to an end
next year.
At present the world is producing just enough
uranium to meet global demand, but this precarious balance is already
tipping. There are dozens of new reactors under construction in China, India,
South Korea, and Russia that will need fuel. Production increases from new
mines and mine expansions are not expected to keep pace. The race to secure
uranium resources is on, and for the first time the US has to compete.
The answer is domestic production. The rocks
underneath the United States hold lots of uranium, enough to make a
significant contribution to the country's uranium needs. The biggest
impediment to mining this resource is public opposition to the nebulous
dangers of uranium mining, but as the Megatons program ends Americans will
start to see that the alternatives to domestic production are decidedly
worse: competing against China, India, and the like for uranium is an
expensive and unstable way to acquire a desperately needed energy resource.
In fact, we have been vocal in predicting a demand-driven boom in US uranium
production. We even expect to see "Made in America" uranium garnering
a premium over imported yellowcake, in the same way
that in-demand Brent crude oil earns a premium above oversupplied West Texas
Intermediate crude.
We have already recommended a range of investments
to our subscribers to gain exposure to the coming uranium resurgence and, as
with coal, there is more to come: the next edition of the Casey Energy
Opportunities newsletter will focus on uranium, with recommendations to
boot.
Well-Field Services
The techniques used to unlock natural gas from shale
reservoirs – horizontal drilling and well fracturing – worked so
well that they created a supply glut that is altering the global energy
scene. That supply glut is now prompting natural gas producers to cut back on
output, which you might think would be bad news for the well-field service
companies that complete those tasks.
Not to worry: North America is also in the midst of
a crude-oil production boom, and the common theme linking most of the
continent's new wells is highly technical drilling and production methods.
The purveyors of those techniques are the continent's well-field service
companies, and their services are very much in demand.
Well-field service companies have been able to
compensate for lost gas fracking business by
shifting to oil, as the oil industry has adopted fracking
to unlock its shale deposits. If you've read about the oil production boom
that is keeping North Dakota's economy hopping, you read about the Bakken shale formation. In the Bakken,
wells are drilled horizontally to follow along the oil-bearing layer, and
then high-pressure fluids are forced down the well to fracture the shale and
release the oil.
Meanwhile, the challenges of producing oil in the deepwater Gulf of Mexico continue to test the limits of
drilling technology. Pushing through kilometers of water before drilling
through just as much rock and then extracting and transporting oil from a
platform rocked by waves and threatened by hurricanes demands a wealth of
specialized equipment and operators.
Most oil and gas companies do not own drill rigs,
nor do they actually drill or fracture their own wells. They contract those
jobs out to companies that drill and frac for a
living, known as well-field service companies. And with wells in America's
booming oil and gas fields requiring more complicated and more technical
services with each passing year, the services these companies provide are
essential to North America's oil and gas producers.
The Casey energy team is all over the well-field
services sector. Subscribers to the Casey Energy Report newsletter and
the Casey Energy Confidential alert service were alerted to our latest
recommendation in the sector in mid-November. Three months later, our
investment is already up roughly 50% and we suggested that subscribers take a
"Casey Free Ride," which means selling enough shares to recoup
one's initial investment and retaining the remaining "free" shares
for continued, risk-free upside exposure.
The Take-Home
When a machine is as interconnected as the global
energy trade, no part can change without impacting the rest. The dramatic
debut of shale gas in North America has done far more than just depress
domestic natural-gas prices – a shift of this magnitude has impacts
that reach far beyond one commodity or one country. Some of those impacts are
negative, but hidden in the doom and gloom lie opportunities to profit. The
key is to open your horizons and embrace the complexity and
interconnectedness of the global energy machine… either that, or find a
good mechanic who can do the job for you.
[One of the best opportunities we've seen in years
involves leveraging a touchy situation that OPEC doesn't want you to know
about. Learn more about it.]
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