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Notes From The Miami Metals Conference: Part IIBy
Tuesday, May 16, 2006
I spent last week in Miami, at a conference organized by Merrill Lynch. It was their 23rd annual global metal, mining and steel conference. The CEOs of all the largest mining companies in the world were there. They came to promote their companies to four hundred and fifty high-powered investors and fund managers... As a group, these people control hundreds of billions of dollars in potential commodity investments, so I had to know what they were thinking... I picked up on three major themes at the conference. Firstly, CEOs are very bullish on commodity prices. In the last twenty years, there was a chronic lack of investment in new projects. Now the industry is struggling to catch up with the supply shortage. Here’s one CEO’s take on gold right now... “The fundamentals for gold demand and supply have never been better. Certainly this is my personal conviction - from the thirty years I’ve been associated with the gold industry - that in every possible way – from central bank selling to new mine production and also from gold’s competitive character as a store of value to fiat currencies - it looks really good.” -Bobby Godsell CEO AngloGold Ashanti L. Patrick Hassey, CEO of Allegheny Technologies, has the same sentiment: “I have never seen a metals market as robust, big and long-cycled as this one.”
Secondly, mining bosses are frustrated that their stock prices are not keeping up with the metals’ prices. I heard this sentiment repeated several times. Here’s how Wayne Murdy of Newmont Mining (NEM) put it: “We have expanded our margins substantially. Either the street hasn’t caught on or they don’t believe it. This isn’t a forecast. The money is pouring in and it’s as real as a cigar box full of cash sitting on my desk... Here’s a stock tip for you: NEM. Buy it! Otherwise, I don’t know why you’re here or why I’m here.” And finally, judging from the questions people asked in the presentations and my conversations with attendees, big investors are skeptical. In the conference’s opening remarks, we were told the consensus expectation last year was that metals prices had come up too far... and everyone was looking for a reason why the bull market might end. One year later, prices have doubled. So has the skepticism. Everyone thinks a correction is coming... even some of the CEOs. “This is craziness,” said a Merrill salesman. “Are you scared yet?” asked another client. Right now, everyone thinks commodity prices have to correct. I think it’s why mining stocks are lagging. I’m skeptical too. There’s definitely a large speculative element to metal prices and I’d love to tell you there’s a correction on the way. Thing is, I can’t do that. When everyone’s thinking the same way, no one’s thinking. The fact everyone sees a correction coming makes me pause. Don’t forget - even at these crazy prices - commodities are still a very compelling investment. The supply simply isn’t there and it won’t be for a long time. The trend is in our favor. Most mining companies have low p/e ratios and adjusted for inflation, commodity prices are still low. Bottom line: We still have big gains in mining stocks ahead of us. Everyone expects prices to fall, the trend is right and there are still pockets of value. I’m holding for the long term. You should too. Good investing, Tom Market NotesTHE LIQUIDATION OF RUSSIA In our March 16th edition, DailyWealth pointed out how the Templeton Russia Fund (TRF) was due for a big drop… This ETF of Russian stocks is heavily dependent on rising energy prices and speculative money flows. With both energy and speculation on the rise, the fund has soared in the past few years… and now trades at a huge premium to its underlying assets. In the past week, the big drop has come. Oil stocks are selling off… and the huge bull run in TRF has suffered severe damage. Down 23% in the past week:
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