3 Top Takeaways From Vancouver

Sprott’s 2017 July Vancouver symposium made clear the large scale of the current opportunity for natural resource speculators, especially in the critical metals for the world economy: copper, gold and silver, cobalt, nickel, zinc, uranium, and platinum/palladium.

From our view, here are the 3 of the top takeaways from our time in Vancouver:

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Source: Bloomberg

1)  As has become tradition in Vancouver, Robert Friedland’s opening morning presentation set the tone.

His current ventures Ivanhoe Mines, Clean TeQ Holdings, and Cordoba Minerals are developing or exploring for large scale (and in Ivanhoe’s case, extraordinary) mines in the commodities most critical for the worldwide urbanization trend: copper, zinc, nickel, cobalt, and platinum/palladium.

In Friedland’s eyes, the burgeoning worldwide electric car revolution will enhance the demand for these commodities (especially copper and cobalt), as the internal combustion engine begins to be replaced by the electric motor and “nickel-cobalt-lithium” (lithium ion) battery.

China, in particular, is driving the switch to electric cars as a solution to the dangerous pollution levels from car traffic in its massive cities.

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  “Smog in Beijing,” source: Time

Of the key urbanization metals, we’ve seen the copper price start to rise recently, while the nickel and platinum prices have bumped up slightly from the bottom, and the zinc and cobalt prices have had strong runs over the last year.  See the charts below:

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Copper: During the conference, the copper price broke out from of both its short term consolidation AND a long term “head and shoulders” reversal pattern, providing a technical signal that prices are more likely than usual to move higher in the near term. Source: Thomson Eikon

fig4.jpgNickel: Still down 80% from its peak, some buying interest over the past few months.  Source: Thomson Eikon

fig5.jpgPlatinum:  Price perking up after 6-7 years of declines, contrarian bullish indicators, uncertain world supply situation (concentrated in unstable South Africa).  Source: Thomson Eikon

fig6.jpgZinc: More than doubled in the last year, stockpiles seem to be drawing down, bullish.  Source: Thomson Eikon

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Cobalt:  Big breakout and rapid price rise in 2017, as increased battery demand met political and social issues in the key supplier countries.  Price still 50% below 2007 high. Source: Infomine

Beyond the future importance of these “urbanization commodities,” Friedland emphasized the following points both during his morning presentation and also the Wednesday Living Legends panel, moderated by Rick:

  • The ability for high margin, large mines to support a local community while giving shareholders substantial profits.
  • Empowering his exploration teams with the freedom and time to think outside of the box and make the unique discoveries that have powered Friedland’s success in the resource sector.

Our Vancouver conference was full of outstanding and diligent exploration teams, exploring for all of the above urbanization commodities, as well as the monetary metals: gold and silver.

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2)  Alongside the importance of developing new resources to build the cities and cars of the future, many presenters also reinforced the importance of a sound basis for money in a debt-fueled “world of imagination,” as put by Grant Williams in his excellent final day presentation.

Williams, the co-founder of Real Vision and author of the “Things That Make You Go Hmm..” newsletter, showed the audience many examples of the fantasies in our debt-fueled financial world, including:

  • European Central Bank’s and Bank of Japan’s exploding balance sheets since the end of the Fed’s QE program.
  • Argentina’s new 100-year term bond issuance (from a country that had more than 5 coups and more than several debt defaults over the last 100 years)
  • The historic increase in both central bank balance sheets and private sector margin debt and its very close correlation to the stock market rise we’ve seen post the financial crisis.

In response to these fantasies, Williams suggested that investors hold dearly to vehicles that have the demonstrated qualities to withstand a turbulent unwinding of debt-fueled dreams: namely the monetary metals, gold and silver.

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Source: “Hold Gold Works,” Stuff You Should Know

It was noted that gold has been talked down because it is inert and “pays no interest to investors,” yet Williams argued that the inert quality of the metal is the exact reason to own it in today’s world.

Gold is money because, unlike government-issued debt (fiat money), it lasts and maintains its value over the very long term,immune to the fantasies and imaginations of central planners.

At the conference, Sam and I found exploration teams and miners well positioned to deliver profitable discoveries and mines to investors who see gold as the lasting standard of value against our modern monetary experiments.

3)  At that Wednesday Living Legends panel discussion, Friedland told a story of his first exploration venture in China during which his team discovered a large and valuable gold deposit, only to see it become the subject of a conflict between two provincial governments and eventually seized “for the good of the Chinese people.”

For Friedland, this crisis became an opportunity, and he looks at that gold discovery (still today being mined by the Chinese government) as a gift to the leaders of China.

He now reaps the rewards of his golden gift: Friedland’s exploration and development companies around the world receive hundreds of millions of dollars in investment from his Chinese friends, alongside infrastructure support in places like central Africa.

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   “Chinese gold mine,” source: Pinterest

Friedland told this story to demonstrate how to operate in foreign lands- by seeing the world from their perspectives and doing business within that framework.

From our perspective, his story also emphasized both China’s ardent interest in gold, which certainly continues to this day, but also China’s evolution to become a primary financier of resource and infrastructure developments around the world.

The continued evolution of China, and investors’ puzzling ignorance of the opportunities there, was the subject of a Tuesday afternoon presentation by Steve Sjuggerud, editor of the True Wealth and True Wealth China Opportunities newsletters.

Sjuggerud caught our attention last July in Vancouver with his call to sell gold mining stocks, which proved prescient from a sector standpoint, though we have seen certain gold juniors give investors substantial profits since last July.

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“Modern Beijing,” source wildchina.com

This year, he made the call to buy the Chinese stock market, as global investors have a tiny overall exposure to China compared with the status of its economy as the world’s second largest.

Sjuggerud told stories of his recent trip to Beijing, and the impressive modernity and futuristic feel of the city and the other major Chinese urban centers.

With China’s population (alongside India and others) continuing to move to these urban centers and their leaders directing initiatives to develop electric vehicles to keep the air clean, we came away from the conference bullish on the commodities needed to build and power these modern cities and vehicles.

We saw presentations from juniors looking to take advantage of the 2017 rise in the cobalt and zinc prices, and also positioning themselves for recoveries in the prices of copper, nickel, uranium, platinum and palladium.

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Sprott Global’s founder, Rick Rule, was interviewed by several media outlets at the conference, and starting at the 6 minute mark of the interview linked above, noted the probability that the cobalt price will continue to rise through the rest of the year.

Those of you that are clients will note we have had a bullish view towards cobalt since the beginning of this year and have focused our attention on certain juniors in Australia, which offer leveraged exposure (i.e. optionality) to cobalt and nickel, in a safe jurisdiction, which is key given the current geopolitical state of affairs in the worlds key cobalt producer, the Democratic Republic of Congo.

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As you can see again in the chart above, the cobalt price has responded positively in 2017 to the combination of increasing demand from electric battery manufacturers and increasing uncertainty of supply source.            

Beyond Australian cobalt-nickel juniors, we have been buying the urbanization trend by investing in shares of zinc explorers, copper developers, and companies developing high grade, high margin deposits around the world.

Wrapping Things Up..

We host our annual conference to provide investors with opportunities to learn from industry leaders and showcase exhibiting juniors vetted by Sprott, with the end goal of increasing investment returns in the natural resource space.

A proven way to increase investment returns in our volatile sector is to buy the highest quality deposits and exploration potentials with strong management teams in a depressed market when prices are low.

The classic example at the conference was Friedland’s Ivanhoe Mines (IVN.to), owner of world-class copper, zinc, and platinum/palladium deposits, which was trading at close to cash value at the beginning of 2016, at about $0.63/share and now trades at about $4.20/share.

Jon noted the opportunity in Ivanhoe in a January, 2016 Sprott’s Thoughts piece, titled, “Big Money is Taking Advantage of the Resource Collapse, You Should Too.” 

Though recovered from the lows of early 2016, the junior resource market is still 75% lower than its 2006 peak, as you can see in the chart below:

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  TSX-V Composite Index. Source: Thomson Eikon

There are currently high quality development and exploration stage companies in both the monetary and urbanization metals that we see as offering exceptional value, particularly given the still-depressed prices available in the market.

Sam and I are very happy to talk about Sprott’s top-ranked juniors developing and exploring for gold, silver, copper, cobalt, zinc, nickel, platinum, palladium, and uranium deposits worldwide.

If you are interested, please contact your Sprott broker, reply to this email, or contact the authors at[email protected].

Best,

Jon Sebastian and Sam Broom

 Join Rick Rule

 

Rick Rule e.jpg

I can’t remember when there’s been more risk or opportunity in the markets.

So please join me for a very special gathering in New Orleans.

— Rick Rule

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