Vancouver Resource Investment Conference 2019: Guarded Optimism

by: Dan Stringer

The Vancouver Resource Investment Conference had good attendance from both companies and attendees, despite continued commodity price weakness.

The uranium industry was in particular focus, with spot prices starting to move in the right direction.

With the industry still in a bear market, a number of companies with good projects and management could provide value to investors.

I made my annual trip down to the Vancouver Resource Investment Conference (VRIC) on January 21, 2019, put on by Cambridge House. This is a brief summary of some notable investment themes, as well as some company-specific information I found during my visit.

The biggest change from last year was the almost complete absence of anything crypto-currency related. The massive sell-off in Bitcoin and the other major cryptocurrencies has put a large damper on the industry, as well as the supporting companies like HIVE Blockchain (OTCQX:HVBTF). VRIC was truly a resource conference this year.

The biggest buzz was about uranium. The uranium spot price has ticked up a lot in the last year, though still a long way from its heyday:

Source: Trade Tech

Many uranium companies were presenting, both in booths and in workshops, from across the spectrum, from prospect generators to producers. In an early morning[i] seminar, Uranium Energy Corp. (NYSEMKT:UEC) CEO Amir Adnani talked about a royalty vehicle it was getting ready to launch, underpinned by a large holding in Yellow Cake Plc. Royalty structures can be a great diversifier, though uranium is a very small industry at the moment. The topic of section 232 was of great interest as a decision is expected to be made in the middle of 2019. This filing by Energy Fuels (NYSEMKT:UUUU) and Ur-Energy (NYSEMKT:URG) is to appeal to the US government to mandate a certain percentage of uranium to be sourced domestically. This is a near-term catalyst for some producers, though the investing case behind uranium goes a lot deeper than this.

The recent mega-mergers with Barrick (NYSE:GOLD)/Randgold and Newmont (NYSE:NEM)/Goldcorp (NYSE:GG) have given the junior space a lot of optimism. Several speakers noted the dearth of new exploration discoveries over the past several years, with these larger companies looking to fill their production gaps via acquisition. The industry has been starting to attract younger people, despite the downturn in most commodity and precious metal prices, partly driven by the expanded use of technology to improve efficiency and safety.

I always learn something from Brent Cook, and his focus this time was on the approach required for successful exploration companies. It is essentially the same format as investments; instead of cutting your losses and letting your winners run, it is "if the deal won't work, kill it fast". Exploration requires big winners as the industry's overall NPV is negative. For example, between 2005 and 2017, $65B was spent on exploration that yielded $30B in assets, according to Cook's presentation. He gave several examples of the risks of exploration where even good-looking geophysics and potential anomalies didn't yield what management expected. Good companies are custodians of capital, even in these situations. Raising money at high points and killing marginal projects are two great ways that management of exploration companies can deal with setbacks.

I have always liked the streaming and royalty business model as it provides diversity in jurisdiction, project, and market. Streaming companies Maverix Metals (OTCPK:MACIF), Wheaton Precious Metals (NYSE:WPM), and Sandstorm Gold Ltd. (NYSEMKT:SAND) all spoke to this business. All of the companies talked about how important it is to ensure their partners and their mines have success. If they aren't financially viable, the streamers won't have any income either.

I found Sandstorm's comments very interesting as they have deviated from the traditional model a bit in recent years. Sandstorm has begun acquiring stakes in some of the companies it has streams in. For example, the company acquired the Hot Maden project through its acquisition of Mariana Resources. This gave Sandstorm an outsized stake in an operating mine, though the company indicated it is looking to convert this to a more traditional arrangement. Sandstorm has an informal "Launch Lab" within the company that provides internal support to its partners on financings. The company's goal is to provide a more "total" solution for its partners. I tend to agree with CEO Nolan Watson that the streaming/royalty space is more difficult now, as the deals are becoming more expensive and harder to do, making Sandstorm's approach an interesting alternative.

Source: Author, Cambridge House

Rob Fuhrman of Katusa Research gave an interesting view on oil. According to Fuhrman, oil has been in a sharp downturn, largely driven by the Saudi efforts to keep pricing down, combined with a massive uptick in US production, driven by the development of shale fracking technology. In his presentation, the key takeaway I saw was a comparative graph of days of supply outstanding. Based on the IEA information, this has been relatively consistent over the past several years. Fuhrman indicated that Chinese demand is not factored into IEA's numbers. He presented a revised graph factoring in China's demand, which indicates that supply is significantly more constrained than is evident from the IEA numbers. He makes the argument that pricing is near a floor, which could be a good time for producers that have been able minimize their debt issues.

I wanted to follow up with a few companies that I have either invested in currently or have in the past, as many have a booth presence at the show or give 10-minute company presentations.

I have owned Atlantic Gold (OTCPK:SPVEF) for some time as it has a lot of the attributes I like in a junior producer. Atlantic has a low cost of production, both marginal and all-in, is generating cash flow, operates in a stable jurisdiction (Atlantic Canada), and has the opportunity to expand its resources. Shares have weakened somewhat in the last month despite a relatively steady gold price, which I had looked to add to prior to doing some preliminary research. In this research, I found a good article by the Critical Investor that had a good give and take between the company and a gold analyst over the nature of its expansion plans and feasibility. I had been hoping that the company would shed some light on this in its VRIC presentation, but it spoke to a new drill result it had in the Corridor Regional program, which helped to bolster its growth profile. The company did indicate that there would be more clarification on its growth plans in Q1, presumably depending on the resource estimate. I still very much like the company, but would like to hear some clarity on the issues noted in the article.

I have owned Trevali Mining (OTCQX:TREVF) in the past, but was stopped out before the massive drop that coincided with the drop in zinc prices. Trevali's primary product is zinc, and the company has four properties around the globe, with mines in Namibia, Burkina Faso, Peru and Canada. The company emphasized that it was able to meet its production guidance despite some hiccups. The plan for 2019 was to grow its resources internally, especially on its shorter life mines, notably in Peru. Management continues to feel that the zinc market is very tight, which should lead to upside in the zinc price, though this has not happened yet. It felt some of the macroeconomic concerns, i.e. tariffs, etc., were impacting overall demand. There is a lot to like with Trevali from a value side; it also is owned 25.8% by Glencore (OTCPK:GLNCY) and has an active NCIB in place. It's getting to the point where I'm not sure how much more downside there is, though I need to do more research at this point.

Wallbridge Mining (OTC:WLBMF) was a company I had become interested in since Eric Sprott took a large stake in it in September 2018 while also continuing to build his stake through subsequent offerings. Wallbridge has focused on the Sudbury area of Canada, which has a rich mining history. The company has transitioned from being a pure explorer to a near-term producer with an aggressive goal to produce 60,000 oz. of gold annually within three years. I liked that the company began buying other assets that were advanced, taking advantage of the recent downcycle. It acquired Fenelon Gold, just east of Detour Gold's (OTCPK:DRGDF) properties and recently added Beschefer in a purchase from Excellon to complement this acquisition. The company has had good results in building up the asset through drill results and is well funded. It is looking to rationalize some non-core assets it has acquired, which the company has a history of success in doing. With a 75,000m drill program, there are a lot of potential catalysts going forward.

I was most interested in see RNC Minerals' (OTCQX:RNKLF) booth and presentation. After I wrote about the company's Father's Day Vein find, RNC has had a wild ride, cresting over 1.00 CAD before settling back around 0.50 CAD prior to VRIC. The company's booth had several examples of gold that was mined from the Vein; the rock on the right below included 12 oz. of gold.

Source: Author Photo from Company Booth

In speaking with the company's head of investor relations, the company is very focused on developing the resource at Beta Hunt. The company had found some smaller pods of gold prior to the Father's Day Vein strike, which lent some credence to its theory. The company's drill program is in place to try to confirm this resource. Depending how these results play out, the company will likely be looking to simplify its asset base, as it doesn't have the resources to develop its Nickel-Cobalt project at Dumont. Reading between the lines, it looks as though this will likely be spun out or sold in the coming year. With this drill program and the potential spin out, there appears to be some significant catalysts to this story in 2019. I was very surprised by the sparse attendance at its presentation, which actually makes me think that the hype is not yet behind this company. In prior years, companies with mega-strikes, such as Mariana Resources' Hot Maden property or Northern Dynasty's massive pebble project would be the talk of the conference. RNC is clearly not there yet, but based on the size of its first anomalous discovery and the lukewarm reception to it, I believe there could be some concerns about it, as there was with Novo Resources, due to the different geology that goes with it. This skepticism may be valid, but it also gives a better risk/reward set-up for RNC if it isn't.

I get a lot of value from this conference every year. As a non-geologist, I like to try to understand how the business works and what some of the terminology means. I also met up with fellow Seeking Alpha contributor Sultan Ameerali, swapping a few ideas over lunch. The networking component is obviously a huge reason most of the companies and investors come to these conferences, but it can work for investors too.

Disclosure: I am/we are long URG, RNKLF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.