By Marin Katusa, Chief Energy Investment Strategist
Many of Casey Research’s editors and analysts spent last week in Toronto at the annual Prospectors and Developers Association of Canada (PDAC) convention. PDAC is one of the biggest resource conventions in the world – this year more than 30,000 people attended the show.
A convention of that size attracts investors, analysts, mining executives, geologists, prospectors, and government representatives from all over the world. With so many resource-oriented people under one roof, a whole lot happens in the space of four days. The thing is: most of the important activity takes place behind closed doors.
Sure, the exhibit hall is a busy, bustling place. This year there were more than 1,000 booths. If you are a resource investor with Canadian-listed companies in your portfolio, those companies will be at PDAC and you will have an opportunity to chat with management. By the end of four days most of those managers have updated so many investors that their vocal chords are worn out.
That is the obvious side of the convention. The less obvious – but more important – side of PDAC is the networking and the meetings that develop out of that networking. Analysts, fund managers, company executives, and major investors ply their networks to find new ideas, new projects, new partners, or new suppliers.
I spent the entire week in meetings, catching up with long-time colleagues and meeting new ones. I left Toronto with some interesting new investment ideas, but I have also been pondering an interesting contrast that has developed within the resource sector.
Gray Hairs Versus the Slick Hairs
I realized that many of the meetings at PDAC fit into one of two categories. In the first, the person on the other side of the table was a gray-haired fellow, usually a geologist or engineer who might have transitioned into management or might still be working directly with rocks. There are a lot of these guys in North America’s resource sector, and most of them really know their stuff.
With decades of experience under their belts, these “Gray Hairs” know a good project when they see one. They usually come to the table with exciting projects and the meetings fly by in a flurry of talk about breccias and porphyrys, water supplies and access routes, milling requirements and recovery rates.
The Gray Hairs are the guys who populate Casey Research’s Explorers’ League. Their résumés are filled with major exploration discoveries and successful mine builds, and a big chunk of the world’s resources were delineated on their backs.
Then there are the “Slick Hairs.” These guys are young and, well, slick. They are the not-so-successful geologists, engineers, and promoters with nice suits and cufflinks and well-coiffed dos, and they pull off the look with pride because in their careers they have already made a lot of money promoting resource deals… or at least pretend to have.
They are promoters. They jump on someone else’s good idea and run with it. For years those good ideas have come from the Gray Hairs. But now we are reaching an inflection point, because the Gray Hairs are in the twilight of their careers.
That is the downside. The upside is that every transition creates opportunity. The departure of the Gray Hairs is creating a gap that needs to be filled. Thankfully, there are some rising resource titans – not slick haired geologists and promoters, but talented, knowledgeable, hard-working guys – who are ready to fill the void and have a track record of success.
Behind Those Closed Doors
The only way to differentiate between the Slick Hairs and the rising stars is to listen in behind the closed doors of those meetings. Once a deal is complete, it can be very difficult to know who actually made it happen. The real movers and shakers often shy away from being identified, preferring to let someone else deal with the public side of the event.
It is only during the process of making the deal when one can identify the puppeteer – the person who is actually pulling the strings. And within the crop of up-and-coming titans there are some very talented puppeteers.
At Casey Research, we know who they are because I and my colleagues have spent many years developing relationships with these individuals, be it on the road visiting projects and assessing investment risks or watching them advance a project from exploration to production. These are the guys who will fill the resource-investment knowledge void that is looming; following in their footsteps – or perhaps I should say their handshakes – could be very profitable.
One of the guys near the top of my list is Amir Adnani. Investing with Amir has brought Casey subscribers 1,000%+ gains, which is why he is in our Ten-Bagger club. Amir is the president and CEO of Uranium Energy (NYSE.UEC), a company focused on uranium exploration and production in the United States. UEC’s Hobson processing facility is in the middle of several UEC mines, a regional mining and production system that greatly reduces costs and enables the company to ramp up production smoothly. We’ve watched Amir take UEC from an exploration company to now one of the lowest-cost producers of U3O8.
Also near the top of the list is Nolan Watson, the child prodigy who helped Ian Telfor transform Silver Wheaton (T.SLW) from an idea into a major silver company with a market capitalization of $3 billion within just a few years. Nolan then left SLW in order to replicate that success in other parts of the mining sector. That pursuit now has Nolan heading up two companies: Sandstorm Gold (V.SSL) and Sandstorm Metals & Energy (V.SND). Both companies are based on the same idea – getting exposure to resource-price upside without taking on the risk of building a mine – and both have secured several promising resource streams. All this, and Nolan is just 33 years old. We plan to follow Nolan’s moves for many years to come.
And topping the list of deal-makers ready to step up and take the reins of the resource world is Pat DiCapo. Pat is one of the most successful financiers in the business today, not to mention one of the nicest guys in the sector, a true gentleman. His list of successes includes Aurelian Resources, which was taken over by Kinross for $1.2 billion; Continental Gold (T.CNL), a young company that already carries a market cap of $866 million; Colossus Minerals (T.CSI), a rising South American gold explorer; Ryan Gold (V.RYG), a hot Yukon gold explorer; and Petroliferia Petroleum, a Colombian oil explorer that was taken out by Gran Tierra Energy for $200 million.
I’m proud to have friends like Pat, Nolan, and Amir in the resource sector – they are not just fun and interesting people to hang out with, but they also have a wealth of information and provide access to good opportunities for subscribers to Casey Energy Report.
These three are members of the Casey NexTen, our list of up-and-coming resource titans. We’re confident they will go a long way toward filling the void that retiring Gray Hairs are creating, and we plan to follow their careers for many years to come.
Always remember that the first – and most important – criterion on Doug Casey’s list of eight investment Ps is People. Following the right people is critical if you want to be a profitable resource investor. Do your portfolio a favor and make sure you have exposure to Pat, Amir, Nolan, and the rest of the Casey NexTen.
Additional Links and Reads
Iranian saber-rattling may have driven crude prices to their highest point since 2008, but the current situation masks the producer’s diminishing importance to global oil supplies. Record spending on exploration across the world is unearthing new reserves that should help the price of Brent Crude oil to fall below US$100 per barrel by 2015, according to the Centre for Global Energy Studies. Many of those reserves are offshore; unconventional oil fields in the United States and Argentina are also expected to make an impact. As such, Iran’s share of global oil production will slip from 4.9% in 2010 to 4.5% in 2015.
The idea that booming oil and gas production could enable the United States to reach its elusive goal of energy independence has been gaining traction of late. This good article summarizes the points, many of which we have discussed previously in these pages.
A year after the worst nuclear accident since Chernobyl, money is starting to flow back into uranium equities. Several producers have notched 20 or 30% gains already this year, including Cameco, the world’s biggest primary uranium producer. There are still questions stemming from Fukushima that remain unanswered, such as whether Japan will restart its 52 idled reactors, but confidence is mounting based on increasing evidence that Asia’s fastest-growing economies remain committed to their aggressive plans to boost nuclear capacity over the next decade.
Exxon to Spend $150 Billion over Five Years to Find Oil, Gas (The Globe and Mail)
Exxon CEO Rex Tillerson says huge investments are needed to expand the supply of traditional fuels like oil and gas while also advancing new energy sources. In response, Exxon is increasing its capital budget by 29%. Many of the world’s major oil companies saw their crude production decline last year as they struggled to find new deposits in an environment where big finds are rarer and costlier to exploit.
Oil Giant BP Expects to Pay at Least $7.8 Billion in Gulf Spill Lawsuit (The Globe and Mail)
BP has settled lawsuits brought by more than 100,000 plaintiffs who claimed harm from the oil giant’s 2010 Gulf of Mexico oil spill, the worst offshore spill in US history. The list of plaintiffs included fishermen who lost work and cleanup workers who got sick. The settlement does not impose a cap on compensation, and BP estimates it will have to pay out about $7.8 billion, making it one of the largest class-action lawsuits settlements ever. BP still has to resolve claims from the US federal government, Gulf states, and some of its partners in the doomed Deepwater Horizon project.