Matt Geiger| November 30, 2015: Being a natural resource fund manager based out of San Francisco can be a frustrating proposition. To my pleasant surprise, however, this all changed over a recent seven-day period.
To my pleasant surprise, this all changed over a recent seven-day period – which saw three distinct SF-based Resource Conferences host over 75 different mining companies. It was a busy week (to say the least) but I was sure to take advantage of it. After all, this is the one time of year where companies actually come to me!
The Events
Things started off on November 17th with the 49 North Resource Conference at San Francisco’s Olympic Club. This was the most intimate of the three events and I was impressed by the quality of companies that made an appearance – including Partnership holdings Scandium International Mining Corp. (TSX: SCY), Nevsun Resources Ltd. (TSX: NSU), and Western Lithium USA Corporation (TSX: WLC). The majority of companies were established producers, with names such as Goldcorp, Agnico Eagle, Imperial Metals, and Altius Minerals taking the stage over the course of the day.
The following Saturday I traveled an hour north to Napa to attend the California Capital Conference, along with 20 companies and 15 other investors. The event employed a “speed dating format,” with all participants completing ~18 meetings over the course of the day. While we only had one current holding present (Platinum Group Metals), there were 3-4 other junior names present that look extremely attractive at current share prices.
The final of the three events was also the best known – The SF Silver Summit (Nov. 23-24) hosted by Cambridge House International. This technically was the first “Silver Summit” in San Francisco, as previous Silver Summits had been hosted in Spokane, WA around this time of year. Turnout was pretty impressive– with over 50 different exhibitors and hundreds of investor attendees. That said, not all company exhibitors were “silver-focused,” a stark reminder that we are in the midst of a bear market. I was able to visit with current holdings MAG Silver Corp. (TSX: MAG), Golden Arrow Resources Corporation (TSXV: GRG), and Focus Ventures Ltd. (TSXV: FCV); as well as pick up information from silver industry bellwethers such as Silver Wheaton and Silver Standard.
Sentiment + New Ideas
Sentiment at these three events was actually pretty positive. Whether this is due to an imminent reversal in the sector, or a product of all but the truest believers in hard assets having been washed out, remains to be seen. The big names were all there and I was able to have nice talks with John Kaiser, Rick Rule, George Ireland, and a few other heavyweights in the space. While I won’t attribute a personal viewpoint to each of these names, I will say that sentiment was split between the following viewpoints: (1) “Q4 2015 is the final capitulation/washout we’ve been waiting for” and (2) “I’m prepared for ugliness to last for another 12-24 months, particularly in base metals.” Regardless of when the market exactly bottoms, the words of Rick Rule as he spoke at the Silver Summit rang true: “Whether this sector turns tomorrow or in a few years, it is precisely 90% less risky to be a natural resource investor than it was in 2011.”
Across the three events, there were a couple “bear market themes” that caught my eyes:
(1) Projects that would be marketed to investors as standalone mines only a couple of years ago are now being pushed as “potentially new sources of ore for existing next-door operations.” In other words, rather than attempt to build a brand new mine, management is hopeful of combining their development asset with a nearby existing producer to either (a) increase the producing mine’s life, (b) increase the producing mine’s grades, or (c) both. While this strategy does increase the likelihood of a positive outcome for these respective companies, it certainly limits upside potential for shareholders.
(2) The everlasting battle of “optionality” vs. “best of class” – some companies were still discussing the leverage their projects have to the eventual turn in commodity prices, while others were focusing on how their projects will be economic at even much lower prices. It is true that the largest winners in the next commodity price rising environment will probably a few select marginal projects (low grade + big size) that are NOT economic at current commodity prices. In the meantime, the question of course is survival!
To conclude, there were a few exhibitors that caught my eyes in particular (none of which are current Partnership holdings): Quaterra Resources Inc. (TSXV: QTA), Alexandria Minerals Corporation (TSXV: AZX), and SilverCrest Metals Inc. (TSXV: SIL).
Quaterra is currently advancing its Bear Copper Deposit in Nevada in a JV with Freeport-McMoran. Shockingly, Freeport will be spending more in exploration at Bear over the next six months than QTA’s entire Enterprise Value! While Bear is likely not economic at current copper prices, this is a cheap optionality play that looks interesting.
Alexandria Minerals is an experienced prospect generator with projects in Quebec, Ontario, and Manitoba. The company has an impressive track record in mineral exploration – including the $5m sale of Akasaba West to Agnico Eagle in 2014. What particularly caught my eye is that, within the past few weeks, the company was able to raise ~$2m CAD from Agnico/Sandstorm Gold at twice their current share price!
SilverCrest Metals is a third name – I was able to see management at both the California Capital Conference and Silver Summit. This has all the signs of a “classic Joel Greenblatt value investment:” the company is a recent spinout trading below cash breakup value. This is despite management’s deep expertise (CEO Eric Fier just sold his previous company, SilverCrest Mines, to Keith Neumeyer’s First Majestic) and a collection Mexico-based exploration properties that are ready to be tested. These are the types of opportunities only available in the very depths of bear markets.
Matt Geiger is a General Partner at MJG Capital
