As editor of the Resource Opportunities financial newsletter, Lawrence Roulston claims average mining stock gains in excess of 560% during the period 2008-2011 with more than 25 companies that he's tipped increasing in value more than ten-fold. So we caught up with him after his talk at the San Francisco Hard Assets Conference to see what his thoughts are.
The key point of his talk was that investors are currently concerned about what might happen in Europe and, as a consequence, are fleeing from risk. One result of this is that the gold price is way up but the gold producers, who are making big profits, have seen a fall in their share price. Junior companies in the sector have been particularly badly hit.
Lawrence reckons a lot of this is due to the situation in Europe but thinks this will be resolved. Once it is, he expects the situation to change: “I think that, once investors get confident that Europe is not going to collapse in total chaos, then they're going to come back. They'll look at the disparity between the metal values and where the companies are trading.
“One of the key measures here to talk up that premise is that the major mining companies and the intermediate producers are stepping in. They’re buying those junior companies at prices that are way above what investors are paying at this time. In our newsletter over the last few weeks, three of the companies that we follow have received takeover offers that have been 50-100% above the price they were trading at the time of the offers. And there are a number of other takeover offers outside of that.
“It's only a matter of time before investors start to realize that there is solid fundamental value in the better quality companies and that, in the fullness of time, the mining companies are going to be making cash bids. Now's a tremendous time to be picking those companies up at really good prices.”
The key challenge is to identify those companies that are most likely to succeed and a good way to do this, Lawrence thinks, is to attend shows such as Hard Assets and talk to the many companies that are represented there. Of the 2,000 or so companies that are publicly traded in the US, he believes only a few will do really well for their investors. So it's important to pick them out and there are certain things to focus on.
“One of the key criteria I'm looking at is the people,” he explains. “those who have not only the capability but also the will to succeed. The best way to determine that is by meeting them face to face. I spend a lot of my time meeting the management of those companies on a face to face basis to make that assessment.
“Another very important point is that they must have a project that has the potential to be big enough to be a takeover candidate for a larger company. The idea of a small company making a small discovery and carrying it to production; those days have gone in this industry for the most part. The real payoff is going to come when they make a large discovery and they get a cash takeover offer from a larger company.”
Looking at the geological setting and conditions can help to determine whether a company's asset is likely to evolve into a large deposit that will attract offers. However, Lawrence urges investors to focus on more than just the richer metals, such as gold and silver. He says: “I really want to emphasize that the base metal companies have been beaten up even worse than the precious metal companies. That means the value premise in the base metal companies is even more pronounced than it is for the precious metal ones.”
The uncertain economic conditions do mean that companies are reluctant to take unnecessary risks. As a result, they're unlikely to put money into building a mine in certain jurisdictions, no matter how good the deposit. A good location is therefore important, with Nevada and Alaska always being popular. Lawrence also reckons Canada is a tremendous place to be developing and that certain parts of North America, such as Oregon where there were permitting concerns, are now on the up.
He does urge that would-be investors look closely before making a commitment and suggests various sources of information: “My newsletter provides my thirty years of experience distilled down to a few pages. It's an entirely subscriber supported publication and we don’t have any relationships with any mining companies in any way.
“There are a number of good newsletters out there and some of the brokers provide meaningful research. I highly encourage people to get involved and do some due diligence to understand what they're investing in. But they should also get some professional input on this decision-making because it's a very specialized investment area.”
Lawrence's own analysis is conducted in a variety of ways but includes traveling to conferences around the world and having meetings with the management of mining companies. He also undertakes frequent site visits, looking at projects directly and meeting the geologists there. He says: “You get a much better sense from the geologists in the field than you get from an investor relations person at a conference or in any setting.
“With me having a geological background, I can establish a real rapport, a professional kind of discussion, with the geologists. When you're on site, you've got the rocks and you've got the situation you can see in real life. It's a tremendous way of getting a real understanding of a project.”
Lawrence focuses his attention on the full range of precious and base metals as well as iron and uranium companies. Of particular interest are those companies that have established a resource and are advancing it towards production. “There's a huge value added in taking an early stage resource and seeing it evolve towards production,” he comments. “That's been the basis for the tremendous returns we've been able to achieve in the newsletter.”
Understandably, since his subscribers pay for the information he discovers, he's not going to be giving tips away for free. However, anyone who's interested can access the website (http://www.resourceopportunities.com) or contact the company to get a sample newsletter and see what’s on offer.