Are There Any Great, New Mining Stocks Left?
Are There Any Great, New Mining Stocks Left?
Where are the hot and cold spots around the world for resource investors? The stampeding bull market in commodities has investors reaching for new ideas. Highly respected newsletter writer Lawrence Roulston of Resource Opportunities favors Canada, Alaska and China for investing in mining and energy companies.
Stock Interview: Lets get the cold spots out of the way so investors are forewarned about which countries to avoid.
Lawrence Roulston:
A lot of the (mining) companies that went overseas in decades back are recognizing the political difficulties with dealing in some jurisdictions. These include places like Indonesia, Columbia, and several of the African countries, such as Congo, Sudan and Eritrea. All of those places where there are great geological prospects, but are more and more risky to deal in. I think some of that mining is coming back closer to home, which is right here in Canada.
Stock Interview: So Canada is on your favorite countries list?
Lawrence Roulston:
At the very top of the list would be Canada. As of right now, taking into account the geological potential, political situation, infrastructure and all the other issues, I would (highly) rate Canada and British Columbia. They have had decades of work. But for the last decade, there hasnt been very much going on. The companies are just coming back and picking up with whats been going on. Similarly, Ontario, Quebec tremendous geological potential and its been kind of ignored for a long time. Canada is now the most important place in the world for diamonds, representing 50 percent on exploration spending for diamonds.
Stock Interview: Is there a specific mineral or metal that makes Canada especially appealing?
Lawrence Roulston:
Its the whole gambit. Canada has always been one of the top metal producers, and its coming back to life. Of course, gold is at the top of the list, but also base metals and uranium. The Athabasca Basin in northern Saskatchewan is far and away the most important area to be looking at, geologically. Its currently the biggest source of uranium and contains the highest grade deposit. There are other uranium prospective areas in Canada that are just emerging. The Thelon Basin in the Northwest Territories, north of the Athabasca Basin, is very similar, geologically, to the Athabasca Basin. It had some work done in the 1970s, and its been pretty much ignored until very recently. Going a little further north to Hornby Basin, it is a similar kind of situation. In Labrador, the central mineral belt is just emerging as a very important place to be looking for uranium.
Stock Interview: Do you have any favorite companies, which you are following and which have good prospects?
Lawrence Roulston:
NovaGold Resources (TSX: NG; Amex: NG), for example, with the Galore Creek. Its a billion ton deposit with enormous metal content. (Editors Note: Galore Creek has been called one of the largest and highest grade undeveloped porphyry-related gold-silver-copper deposits in North America.)
Stock Interview: What is another of your favorite areas, which has gone largely undetected during this bull market?
Lawrence Roulston:
Nevada would be at the top of the list of anywhere in the world to be working and Alaska right behind it. There is huge potential in Alaska. Mining companies have only scratched the surface of exploration up there. Two of the largest metal deposits in the world are in Alaska. These are both discoveries going back decades, but work over the last couple of years has brought them to the point where theyre now recognized as among the largest metal deposits in the world: Donlin Creek, a 25-plus million ounce gold deposit, and the Pebble deposit, held by Northern Dynasty (TSX: NDM). The Pebble deposit is significantly larger than, and of comparable grade to, Ivanhoes (NYSE: IVN) Oyu Tolgoi (copper-gold) deposit in Mongolia. (Editors Note: The Donlin Creek project is a joint venture between NovaGold and Barrick Gold.)
Stock Interview: Anywhere else in the world where you can find a great, but still new resource investment opportunity, in light of how hard the commodities bull has been stampeding the past few years?
Lawrence Roulston:
Often the better value to be had, or the better opportunity, is in being a little bit out of step with the crowd. One of the areas offering some outstanding opportunities is China.
China has done a tremendous amount of geological work, over the last few decades, but all from the perspective of finding, and then quickly developing, small deposits. There has been very little effort devoted to taking a bigger picture type look at China. The companies that have been able to take a kind of bigger picture look at China have begun to develop what I think are going to be some pretty spectacular results over time.
Stock Interview: Isnt it tough, though, doing business in China?
Lawrence Roulston:
There is still a perception out there that China is a difficult place to do business. Most people from the west walk into China cold and try to do a deal. It would be impossible for them. But, for western companies that are able to team up with groups that are well established within China so that theyre able to find their way through the system over there then there are outstanding opportunities. There are mountains of geological information all in Chinese, of course. Youve got to be able to work within that system and get the information, know how to put the deals together.
Stock Interview: What do you mean by knowing how to put the deals together?
Lawrence Roulston:
If I was to go over to China and try to do a deal to get access to a coalbed methane property, I wouldnt have a clue about how to begin. On the other hand, I could walk into the Petroleum Club in Calgary, and meet a half dozen guys and talk to them. I could build on my leads, and probably in a day be talking about a deal. When you go into China, unless you have somebody on your team that can get into the system and deal with the people, because of language issues, cultural issues and just having access to the information and knowing what sort of terms that they might be looking for Its a different culture from every perspective, and not the least of which is a different way of doing business.
Stock Interview: In your April issue, you recommended one company, which overcame those hurdles, meets your criteria and already has a coalbed methane deal in China.
Lawrence Roulston:
Pacific Asia China Energy (TSX: PCE) established connections in China. They can draw on their contacts and their network. They can get into see the right people, where they can actually talk seriously about doing deals, and have an enormous leg up over somebody that walked in cold and tried to establish and build contacts and put a deal together. I think it is an absolutely outstanding opportunity that theyve seized on.
Stock Interview: There are many coalbed methane opportunities in Alberta. Why look to China?
Lawrence Roulston:
One of the things that makes China interesting is the entry cost to get into a coalbed methane (CBM) play in China is fairly modest. For example, to go to Alberta, or anywhere in the United States, and get access to the exploration rights, or exploitation rights, is enormously expensive. In China, they walked in and, for a fairly modest up-front commitment, obtained a control position in a CBM prospect.
Stock Interview: How does Pacific Asia China Energys coalbed methane property in Guizhou, China rate against other coalbed methane plays?
Lawrence Roulston:
I think its an outstanding opportunity. Chinese government agencies have done an enormous amount of work at delineating the coal. To be able to step into that amount of data as a starting point to build up their CBM resource? The bottom line is that theyre not out there looking for coal. They know exactly where the material is, and theyre able to quickly start defining the issues like recoverability. Theyre drilling in order to establish the basic physical parameters of the flow rates and the content within the coal. I think the companies which are able to effectively exploit the CBM technology in China are going to be the pioneers in that area.
Stock Interview: To Americans, any business in China might appear to be pioneering, since most of still think of China as a third world country.
Lawrence Roulston:
Ive been to China many times and Ive been to parts of China where most people, as tourists, would never get anywhere near, because I go there to look at mineral exploration projects and mining projects. Ive been to every corner of the country as well as the major cities. What I see happening everywhere I go is a pace of development that Ive never seen anywhere else in my life, anywhere in the world. That is, 1.3 billion people are going from a basically rural farm-based economy to a modern industrial economy at a pace that has just never before been conceived.
Stock Interview: How do you quantify that?
Lawrence Roulston:
This is a number that most people wont get, and you wont get until youve been over there and have seen it. There are 300 million people in China that are already well into the middle class. By middle class, I am comparing (the Chinese middle class) to the same absolute standards as we would apply in Canada or the United States in terms of dollars in your bank account, value of your house and your car, and everything else. There are 300 million people that have already achieved that status, which is more than the people at that status in North America. There are another 1 billion people who are busting their butts to get to that level.
Stock Interview: But isnt the rest of the worlds rural population just as industrious and ambitious?
Lawrence Roulston:
Ive been in Africa, the Middle East, Asia and Latin America. If you go into any of those areas and you walk into the small towns, a lot of people are sitting around drinking coffee, crying the blues and complaining about how terrible life is. Go into a similar area in China, and the people are out working in the fields. In the middle of winter, theyre fixing up their fences, the dams and terraces, and clearing rocks, removing trees and stuff like that. Its a high level of industry Ive never seen in any other part of the world. So it goes from that ground level right up to the entrepreneurs, and the guys who are building the high rise condominium complexes in Shanghai.
Stock Interview: How long will it take before American investors realize the impact China has on the global economy?
Lawrence Roulston:
Its going to happen in a gradual way. I think those that keep their heads buried in the sand are going to get left behind as the world pulls ahead. I would suggest any investor in any company ask the question of the company: Is that company involved in some way in China? There are a lot of North American companies that have a very significant presence in China in terms of doing business over there, of getting established, of selling products or manufacturing products in China.
Stock Interview: Why is China so important with regards to this commodities bull market, and are there still opportunities for investors?
Lawrence Roulston:
There is a lot of geological potential, and there is the perception that its difficult. Therefore, there isnt yet a big crowd of people over there chasing after deals. The flip side of it is that China and its neighbors in southeast Asia, representing 3 billion people, are going through the modern industrialization process. That is going to continue to create a massive demand for metals for, I believe, a decade or probably even a couple of decades into the future.
Stock Interview: And most likely, the U.S. investor is going to be left behind or the last one into the pond?
Lawrence Roulston:
The bottom line is that Americans tend to be more inward focused. The other evening I was having dinner with an oil man from Texas who had spent a lot of time in China. He had seen China first hand and was very bullish. I asked him, How many of your countrymen do you think really get it about China? And he responded, Oh, about five. Then he said, Congress doesnt get it, investors dont get it and the man in the street doesnt get it. Americans just dont understand whats happening over there yet.
