Keynote speaker Dennis Gartman, trader and publisher of The Gartman Letter, took the stage sharing his thoughts on the markets and where we were heading in the future. Looking forward, Gartman believes that food demand will outstrip production growth in the coming years and investors should gain more exposure to fertilizer stocks as food stocks get tighter.
Dry shippers will rise after prices collapsed earlier this year but do not try and catch a falling knife. Investors looking at dry bulk shippers should wait until after the stocks base and begin to rise. Gartman is not a peak oil believer because we will substitute. We used whale oil in the past before switching to oil and will switch again in the future. He is not sure what we will switch to, but at some point the world will make a move.
High quality crudes are disappearing and will not be available for a long time. He is not bullish on oil but bullish on Brendt (high quality) and the Brendt/WTI spread will continue to rise until the shorts are broken.
On a side note, your author also believes that high quality crude will continue to sell for a premium well into the future. Investors looking at oil stocks should differentiate between production volumes at different grades as the margins at the high end are significantly better than the low end.
Stocks are inexpensive although violence tends to be a phenomenon of high prices so we are not at a bottom. Quiet is a sign of bottoms in stock markets. One day we will see a shift from a fear to a food trade. Gartman prefers wheat because you can eat wheat and sometime in the next decade he will want to be long grains and short gold.
At the present time, no one is bullish on the US dollar. Now he is bullish on the dollar because the world’s reserve currency has always been the preeminent military power.
The opening remarks delivered engaging and interesting views on where the markets are heading into next year. The exhibition floor teemed with activity as people met with exhibitors and listened to short presentations by Alan Shefsky of Pele Mountain about their rare earths deposits and Thomas Morris regarding Northern Superior Resources, who just optioned a property to Rainy River Resources.
One particularly interesting presentation came from Derek Burleton of TD Waterhourse Canda regarding their 2012 Economic and Financial Outlook. Greece will default, it is just a matter of when. Globally, political risk has become paramount. The United States has pushed itself to the brink of bankruptcy and Europe embraced austerity then went on a holiday. Fiscal restraint will be a mammoth challenge to the US. Canada has a favorable investment climate, emerging markets continue to provide an offset, and commodities will continue to hold up.
The rest of Day 1 for me was listening to the various educational presentations providing numerous benefits to investors in these uncertain times. On Day 2 I focused on two presentations and meeting with the rest of the booths to engage in active discussions about the prospects for various companies.
Allana Potash (ALLRF.PK) gave an interesting stage presentation discussing its potash deposit in Ethopia, a mining friendly jurisdiction. 22% of the stock is in strong hands with 17% held by Liberty Metals and Minerals and 5% held by the International Finance Corp. (World Bank). This is IFC’s first potash investment and Liberty’s first public investment.
The new 43-101 report only covers 40% of the property with a measured and Indicated Resource of 673 million tonnes grading 18.7% KCL and an Inferred Resource of 596 million tonnes grading 25% KCL. The deposit has SOP potential as well which will be evaluated down the road.
Unlike most potash deposits, this one is close to the surface (100-300 meters) and amenable to open pit mining. The temperature jumps to 40 degrees C during the day allowing for solar evaporation ponds which will result in significant cost savings.
A feasibility study has been started with an estimated 3rd Quarter 2012 delivery and the first production is expected at the end of 2014. 2 drills are currently turning on site with the expectation of enlarging the resource estimate. India has committed $300 million or half of what Ethiopia needs to construct a railroad from the port in Djibouti to existing rail lines.
The second presentation was by Ira Gostin, Business Director of Tahoe Resources (THOEF.PK). Tahoe was founded by former Goldcorp (GG) and Glamis CEO Kevin McArthur, whose name needs no introduction. As a sign of Kevin’s reputation within the mining industry the roster of major shareholders is a veritable who’s who. Franklin Advisors, Fidelity, Goodman & Co., Tocqueville, and Goldcorp are major shareholders with Goldcorp owning 40% of the outstanding stock.
The Escobal project will entail capex of $335 million dollars and enjoys a 100% project cost lock-in. There will be no feasibility study, just updating the project economic assessment and moving forward with production targeted to start in the fourth quarter of 2013.
Base case economics are 19.7 million ounces of silver at total cash cost of $2.47 per ounce providing annual cash flow of $246 million per year and a payback in 1.5 years. The only remaining permit is the exploitation permit which is expected in May 2012. To date there has never been a problem receiving permits from the Guatamalan government despite the countries troubled history. Once the mine goes into production it is expected to contribute 10% to the country’s GDP so this project is important for Guatemala’s future.
After the presentations I made my way over to the Petrobras (PBR) booth, meeting with Maria Iazbel Ramos who enlightened me about the history of Petrobras and recent offshore drilling success.
Unlike most state oil companies that were formed with the express intent of managing a state’s oil reserves, Petrobras was formed to solve the problem of finding and supplying the economy with oil and gas. Over the years Petrobras has evolved to become one of the largest oil and gas firms worldwide.
The newest discovery is the Tupi field off the southern coast of Brazil in the Atlantic. Tupi was discovered in October of 2006 and considered one of the most important oil discoveries of the past 30 years. Located under a salt dome, Tupi is a massive oil and gas field estimated to contain at least 5 billion barrels of oil. Production began in 2009 with the initial output of 14,000 barrels per day.
Deepwater production is nothing new to Petrobras as it accounts for almost one-quarter of the deepwater oil production worldwide. While this is a massive challenge when you look back on the history of Petrobras, it is apparent that its ability to solve problems will show that it is up to the challenge.
Investors have sold off Petrobras since March, but that should not deter investors. Instead it should be seen as a buying opportunity. Investors have sold assets from areas deemed risky, including Brazil, as shown by the return of the Bovespa Stock Index, but capital will continue to flow into Brazil ahead of the World Cup in 2014 and the Summer Olympics scheduled for Rio de Janeiro in 2016.
Investors looking for a bit of additional help in these uncertain times should check out The Money Show when it comes to a neighboring city. The panelists and presentations are of extremely high quality while investors gain the opportunity to hear from quality companies in different commodity sectors.
Disclosure: I am long GG.