In today’s Exponential Investor:
- Professional investors don’t worry about falling markets
- Experience counts
- A new hype cycle in rare earths?
I’m fresh from the 2022 New World Metals Conference in Australia last week. Given the number of conferences I’ve attended in the past few months, I’d forgive you for wondering if I’m in fact a professional lanyard model.
However, after two years of governments playing Open Shut Them with the economy, I’m keen to get out as much as possible. That, and working permanently from home, means that I don’t wash my hair as much as I should…
This conference was different to the events I usually go to. Rather than company presentations being broken up with big-name speakers, it featured back-to-back company presentations with only opening and closing remarks from a non-mining firm.
Whack on a £600 ticket price and you quickly realise that this type of convention isn’t for the average retail investor… it’s aimed at big money.
Consecutive mining presentations and an sizeable entry cost tell you that most of the investors in the room are either brokers, private fund managers or wealthy individuals. These are the kind of people who are likely to take a stake in a company rather than simply buy a few thousand shares.
These are exactly the people to go to if you want to know what the wealthy are doing with their cash.
You never know how much money someone has
Perhaps the first thing I learned isn’t that the markets are down, or that the local currency is weak.
This was assumed knowledge the moment you walked in.
To boot, neither the open or closing remarks were about reassuring the audience that markets will settle and that better days lie ahead.
Again, it was assumed that the punter in the room knows that markets are cyclical. He/she is aware that commodity markets will bounce back. Until then, investors with a large appetite for risk have the chance to get into stocks that the broader market hates.
Not once were these topics raised. Rather, it was all about just how much money we are going to need for the energy transition – which is a certainty.
Then every single company got up and sung for its supper.
Now, I enjoy conferences like this where it’s purely about the companies rather than the big names to lure in retail investors.
For starters, the crowds are smaller, the language is more technical, and the companies are more willing to get into the weeds of a project because they aren’t sure just how much money you have.
They could be talking to their next key stakeholder for all they know. For an investor, that can be quite powerful.
And when these tiny junior explorer companies are all clustered in one place, you’ll notice a theme emerging.
“A touch of grey”
Some of the companies I saw last week are the teeniest of tiny companies listed on the Australian Securities Exchange. I can’t name them for fear of giving the entire compliance department a heart attack.
But I can tell you that two common threads run through almost all of them: they are cashed up, and most of the management teams all have “a touch of grey”.
Sure, 2022 has been rough for commodity investors. But commodity markets were hot last year, and this enabled many tiny firms to raise significant cash. The good news is that it means most companies won’t be going cap in hand to the market for more any time soon.
However, one thing that struck me is how keen companies were to talk up the age of the team driving its project.
Whether it be the technical team reviewing the geology, the money guys with access to capital markets, or even simply how the board is structured, every CEO was eager to tell you how old everyone was.
This was refreshing in a youth-obsessed society. But, also, it was about hammering home a point: geology graduates don’t find economic deposits; multi-decade industry veterans do.
These days, very little geology is at the surface, and almost any future ore body is what’s called “under cover”, i.e. not visible at the surface. To find a deposit when there’s visible mineralisation is a remarkable feat that’s almost impossible when you’re fresh out of university.
Embracing the age factor is meaningful for investors, too. It’s one thing to find an economic ore body, but it’s another thing entirely to build a mine out of it. Having an extremely experienced – and proven – team is needed to bring a mine to life.
Rare earths are in fashion again
At least half of the companies flogging their wares on stage talked up the potential of having, or finding rare earthss elements.
It has been a few years since rare earths attracted this much attention. Yet the heads of mining companies last week were keen to ponder whether these magical metals could be resting beneath their tenements.
I’m old enough to remember the first-time rare earths deposits were in fashion. Of course, the problem of developing a touch of salt and pepper myself means that I can smell a hype cycle coming.
You see, rare earths aren’t rare at all. What’s rare is that enough are clumped together to be mined economically. And a miner doesn’t hit pay dirt and start raking in money just by having rare earths.
Some rare earths are found with radioactive materials such as uranium and thorium, which makes mining them troublesome. Many established countries with rare earths elements prevent the mining of these deposits altogether, meaning what’s in the ground stays in the ground until the government changes its mind…
The question is, will rare earths hit the same frothy highs as 2010? Let’s get into that next week.
Until next time,
Co-Editor, Exponential Investor