Chris Thompson of Haywood Securities - ranked as the top stock picker in the metals and mining sector in the latest StarMine awards - joined us for a live discussion Wednesday.
The following is a full transcript:
1:03 Darcy Keith - Hello everyone! Welcome to this live discussion. We'll be getting underway in just a brief moment.
1:04 Darcy Keith - Hello Chris
1:05 [Comment From Chris ]
Hello everyone - welcome to our live chat
1:06 Darcy Keith - Thanks for joining us today - should be a great discussion.
1:06 Darcy Keith - Just to start things off Chris, I'm wondering about your overall thoughts on the metals markets - and which sectors are your favourites right now.
1:09 [Comment From Chris]
Obviously, we are going through a phase of market weakness at the moment - driven by some macro-economic uncertainty. Metal prices are still firm - gold - silver and copper. I see precious metals as offering the best medium term upside on the back of their role as a hedge against economic uncertainty.
1:11 [Comment From Ian from Halifax ]
Hi Chris - can you let me know what your thoughts are regarding gold mining in Congo - specifically junior exploration companies?
1:14 [Comment From Chris]
Thanks Ian - the Congo is a very well endowed region for metals exploration - and offers significant exploration upside - but this must be balanced in the context of political risk
1:14 [Comment From AustinC ]
Chris, do you think we could see a major correction in precious metal prices like we saw in 2008? If economic issues lead to another market correction, are commodities vulnerable again? If not, what would make this time different?
1:20 [Comment From Chris]
As far as metal prices - gold corrected marginally - but has since doubled - silver corrected significantly on the back of economic concerns - I feel that precious metal prices will remain firm - but I feel we are in for a short term period of potental weakness
1:21 [Comment From Julie ]
We have many silver coins at home. I understand the years that will be of any value are 1968 and earlier. Do you think the value of these coins will increase significantly over the next 6 months?
1:21 Darcy Keith - I think, put another way Chris, do you have any specific price forecasts for silver over the next six to 12 months?
1:24 [Comment From Chris]
We forecast an average silver price of $32 / oz this year dropping to $20 / oz in 2016. This looks conservative based on silver's recent run. We need to see firm prices at $35 / oz for a few more months - and market analysts will feel more comfortable in increasing their long-term projections.
1:25 [Comment From Mike ]
Hi Chris, what is your take on owning the actual metals vs. mining stocks? There seems to be a disparity between the increase in actual metals vs. mining stocks.
1:31 [Comment From Chris]
Thanks - a worry in the sector right now relates to geo-political risk - on the back of the belief that local communities aren't enjoying the benefits of high metal prices - this has contributed to a soft market for equities - together with technical risk - a relative lack of M & A activity and tight markets for raising significant funds for high capex cost projects. I would recommens a balanced approach - hold both - stick to good quality management teams
1:32 [Comment From Tom, Oakville ]
Hi Chris, I'd appreciate your views on Molybdenum and your recommendations re any good investment opportunities.
1:36 [Comment From Chris]
I don't cover the moly space - but my colleague Stefan Ioannou does - he covers a number of stories - Mercator which when they bring Creston on-line in 2015 will make them one of the largest moly producers in the world. fFel free to give him a call.
1:37 [Comment From Damien ]
Where would you characterize where we are in the base metals cycle right now? It seems we've had elevated prices for some time, so I would expect new production to come online soon. When do you see the next wave of new production to bring prices down again?
1:40 [Comment From Chris]
Copper - or doctor copper - is regarded as a leading indicator for economic strength - followed by lead and zinc etc. It really depends on your view on the medium term economic climate Us - Europe - China and the developing world - as long as China's demand for metals continues - the base etal market will remain firm
1:41 Darcy Keith - Next, we have two related questions on what your crystal ball is showing:
1:41 [Comment From Justin ]
Hi Chris. What are your top 3 picks right now?
1:41 [Comment From Jay ]
Chris what would be your top picks in the mining sector right now?
1:46 [Comment From Chris]
OK - for leverage to the silver price and growth - we like Fortuna - for gold and silver development - we like Kimber Resources - B2Gold looks good - but isn't cheap on a cash flow basis - but they have one of the best teams in the sector - for exploration and developement. Keep an eye on Mirasol for resource growth in the silver exploration space.
1:47 [Comment From James ]
What are your thoughts on the multiple contraction currently taking place for senior gold companies? Have we reached a new age where these companies trade at 1x NAV or is this a temporary undervaluing of the stocks?
1:53 [Comment From Chris]
I believe in valuing senior producers on a cash flow basis - not a NAV - unless they present significant growth potential - I feel that in time - M & A will help add the longer term growth potential that majors seek - which will be accretive to NAVs.
1:54 Darcy Keith - Two related questions now on a commodity that's been in the news a lot lately:
1:54 [Comment From Guest ]
Is uranium a good play over the long-term?
1:54 [Comment From AustinC ]
What are your thoughts on the uranium space? Is this sector doomed because of the issues Japan is seeing?
1:58 [Comment From Chris]
Thanks - I don't cover the uranium space but my colleague Geordie Mark does - feel free to call him. On uranium...
2:01 [Comment From Chris]
Obviously there is a lot of uncertainty in this space right now due to the events in Japan, and the spot uranium price has fallen the last 5 consecutive weeks. Japan is still only operating 20 of its 54 reactors, and they are beginning to feel the pressure to restart due to power shortages. In the junior uranium space there is a question as to whether the explorers and developers will be able to access the capital required to fund their future work. With that in mind, we see real opportunity in companies recently entering production such as Uranium Energy Corp, and those on the verge of production, such as Uranerz Energy Corp., as well as Paladin Energy, who has an aggressive growth profile.
2:01 [Comment From Tony ]
Chris, your 6-12 price on silver is corrective/bearish. Others like Eric Sprott are very bullish, and explained it through the supply/demand cycle driven by currency hedging. What drives your outlook?
2:02 Darcy Keith - And a related question from Jin:
2:02 [Comment From Jin ]
You mentioned earlier that silver will be dropping to $20 in the next couple of years. What is your rationale on this? Does this mean gold is also going to get pulled down along with silver?
2:10 [Comment From Chris]
OK - we see $20 / oz long term in +2016 - Eric is bullish and I believe that silver's performance will be surported by gold's and underpinned by its demand for industrial fabrication. Based on demand projections - the fundamentals look good - based on new supply - they look ok - bearing in mine additional production is anticipated from Penasquito and Pascua-Lama. However - most of silver production comes as a by-product from mining other metals - and will be hinged to their economics - also silver is characteristically very volaile - which we have seen. $50 / oz is not unrealistic - in the near-term - if it occurs - it will be driven by speculative demand for investments.
2:11 Darcy Keith - Thanks Chris. I'm afraid we're almost out of time for today's chat...which is too bad, because we have many more questions! My apologies to those we haven't had time for. But here's one final question, on some often-overlooked metals that we haven't had much time to discuss so far:
2:11 [Comment From Josephina ]
What are your thoughts of the PGM space in South Africa? What are the fundamentals driving platinum and palladium and where do you see their prices going?
2:16 [Comment From Chris]
Thanks Josephina - South Africa is the world's largest producer of PGMs - South Africa has its challenges - high operating costs etc which will underpin the PGM prices - PGMs are used mainly for autocatalyst manufacture - and as such are linked to the helth of the auto industry. With Japan slowly coming back on-line by way of autos - and limited new supply - we are bullish on prices on the medium term - also China and India will contribute to additional positive demand.
2:17 Darcy Keith - Great, thanks Chris. Any final thoughts or comments you'd like to leave with our audience today, or anything we need to know on disclosures?
2:21 [Comment From Chris]
Only a couple of disclosures: Haywood has been involved in funding Mirasol, B2Gold. On the space - look for companies with projects that make sense - and quality management teams. Also, be weary of politically sensitive jurisdictions.
2:22 Darcy Keith -
OK Chris - thanks again for joining us today. And thanks everyone for participating. Join us again soon for another live discussion at Globe Investor. Bye for now.