We caught up with Lawrence Roulston, Editor of Resource Opportunities, at Mines and Money London to ask for his assessment of current investment opportunities, which stocks he thinks are undervalued and the outlook for global mining investments.
Watch this Interview as a Video
M&M: What’s your response to industry commentators who are painting a picture of doom and gloom about the mining market based on economic conditions?
LR: Well, there is a lot of reason to be gloomy about a lot of the companies in this sector. A lot of the companies are still overvalued. So, I suspect that if anybody chose companies at random in this sector, they’re going to be very disappointed over the next few months.
But, if you select companies very carefully, and in particular look for those companies that have good, solid assets, a resource that has reasonable prospect of moving toward production, then the upside potential on those select companies is outstanding. In fact, from that perspective, this is the best buying opportunity that I’ve ever seen in all my years in this industry. But, more than at any other time, it’s a matter of being selective.
M&M: Which areas of the market do you think current prices of mining stocks are undervalued? And what has caused that?
LR: Well, I think the prices of juniors are undervalued across the board. The investors in this moment are more focused on the gold companies, number one, and other precious metal companies secondarily, just because there is this feeling of precious metals as a safe haven in times of uncertainty. There’s a greater familiarity, I think, with the juniors and with the precious metal companies. So, that’s probably the area that’s of most interest right now to investors. In the base metal side, they’re less popular to investors. They’re even more undervalued than the precious metal companies. There’s greater upside potential on the base metal side, but it may take longer for that value to be realized.
M&M: Can you highlight any commodities that deserve particular investment attention? What are the drivers behind that?
LR: Personally, I really like the silver companies at this moment. One of the things that I really like are silver companies that have a big base metal component. In this market, the investors are giving no value whatsoever to the base metals. Yet, a lot of silver deposits, half the revenue is coming from lead and zinc. So, looking longer term, the zinc market has very strong fundamentals. I think it’s too early yet to get into a pure zinc play, unless you’re very patient and take a long-term perspective. But an excellent way, in my view, to play that longer term zinc thing, is to get into a silver company that has the zinc-lead byproduct credit. So, you’re getting a play on silver, mostly at a discount, and you’re getting the base metal credit really as a free bonus.
M&M: Are we seeing a regional shift in global mining development? Which regions are losing and gaining their levels of competitiveness? And what affects is this having the price of stocks in these regions?
LR: Well, in this moment, investors are so risk averse, that it’s really hard to raise money for exploration development stage companies in many of the political difficult regions, parts of Africa, Central Asia. So the expiration and development activity has really fallen off in those areas. There’s a big shift to the more favorable political jurisdictions; Canada, the United States, Northern Europe, are all looking really positive at this stage because of the perception of lower risk. I think that trend is going to continue for some time yet. That investors just don’t see the enormous political risks. We’re seeing nationalisation happening in Argentina and Bolivia, which is really putting out a negative mood on much of Latin America. Russia has certainly not been a great place for investors for a long time and I don’t see that changing. The satellites to Russia are also looking very unattractive.
M&M: How do you rate West Africa as an investment opportunity?
LR: West Africa is an area that’s very favorable for investing. Ghana has really jacked up their tax and royalty rates over the last couple years. But now that they’ve gone through that exercise, it’s expensive to do business there. But at least there’s a certainty. You know what’s coming. Other parts of West Africa, they haven’t gone through that jacking up the royalties kind of routine that Ghana has done. So, I can see it coming. Although, there is a balance. They certainly need the investment. They want to keep the investment dollars flowing. So, I think it’s going to be a reasonable kind of process. But, I would be prepared for changes in that regard. But other than that, it’s generally a good place to be investing.
People in this article