The Most Powerful Men In The World Right Now

As I write today’s column, I’m sitting in a room with some of the world’s most powerful men - the CEOs of the biggest mining companies on the planet.

They’ve come to the Merrill Lynch conference to promote their stocks to a room full of suits from London and New York. 

Chip Goodyear from the world’s largest commodity producer, BHP Billiton, is here.   Wayne Murdy of gold giant Newmont Mining is here as well.  We’re also hearing from CEOs of the coal, zinc, nickel, iron, and aluminum industries.

At DailyWealth, we believe these companies and their bosses will become household names as the commodity bull market goes on for years...       

Today, I’ll pass on some general observations about what I’ve seen so far. Next week, we’ll look at some of these companies in detail and find out what their CEOs think about metal prices.

Observation #1:  This Merrill Lynch mining conference has run for 23 years. The average attendance is around 200. This year there are 450 attendees. The audience is composed of brokers, analysts and hedge fund managers. 

The interest caught Merrill by surprise. There weren’t enough seats for everyone. The staff asked us all to leave the room at the first break so they could bring in more chairs.

The emcee – a senior commodity analyst from Merrill Lynch – didn’t think we’d reached a peak yet, but said the easy money has already been made.

“Unlike prior cycles, we see an unusual combination with producer discipline and volatile geopolitical environments - which if continued - will keep the current cycle stronger for longer...” he said.

Observation #2: Inco, the world’s largest producer of nickel, didn’t show up to the conference. On the eve of the conference, another attendee, huge Canadian zinc miner Teck Cominco, announced a hostile bid for Inco and hired Merrill Lynch to advise.

The conference was buzzing with the news. Late on the first day, Teck Cominco’s CEO explained the rationale behind the bid. As I’ll explain next week, I think it’s a good deal for both companies.

Observation #3: Mining CEOs are terrible public speakers. They read from prepared notes and spoke in monotone. They don’t use comedy, stories or anecdotes in their presentations. I saw few smiles... only forecasts, projections, statistics and charts.

Observation #4: Energy is a huge deal with these guys. It was mentioned again and again. Many of the miners have energy contracts in place that guarantee power prices through 2010, so high prices aren’t affecting earnings on current operations. It’s the potential new projects that are affected. High power rates make marginal projects unfeasible.

If affordable power is not available - no matter how big and juicy the deposits may be - they can’t be mined profitably and new supply is capped. Also, what happens in 2010 when the existing power contracts are reset? 

Observation #5: As I listen to these guys, I get the feeling this bull market is about to get violent. I feel jitters in this room. The easy money is gone and volatility is on the way.

Volatility is one of the market’s defense mechanisms. It makes investors nervous.  They sell too early and go away.

Bull markets always last much longer than people expect. The work on historical price cycles Steve Sjuggerud and I have done shows this cycle could last until 2020.

Over the next decade, I expect prices are going much higher. Don’t let the market push you off this train.

More from the conference next week...

Good investing,

Tom