Prime Meridians – 5 Ways To Win In Natural Resources Right Now

This week in Pierce Points:

India created a strategic uranium reserve. The country will stockpile up to 33 million pounds for its growing nuclear sector.

The U.K. made oil exploration more attractive. New tax breaks and enhanced capital cost allowances could revitalize North Sea drilling.

North Korea became the world’s top coal supplier. New data show it was the only country to increase shipments to China so far in 2015.

Rajasthan talked up 30 new mining projects. The Indian state is looking to license out discoveries of gold, base metals, and iron ore. 

Aluminum gave commodities investors some good news. Global demand for the metal jumped 15% in Q2, according to Norsk Hydro. 

5 Ways To Win In Resources Right Now

I’ve just returned from Myanmar. Where it was 41 degrees Celsius, bright and sunny in the field.

The global resource markets, by contrast, are looking rather grey these days. 

We saw gold drop below $1,100 this week — dragging industry measures like the S&P/TSX Global Gold Index to its lowest level since 2001. 

We also saw copper fall to multi-year lows below $2.40 per pound. Giving the red metal a nearly 20% loss since mid-May. 

Energy hasn’t been a picnic either. With WTI crude falling $10 per barrel over the last month, to a current $48. Even stalwart Brent oil is down significantly, to below $55. 

Coal is down. Iron ore is near decade lows. Lead and zinc are subsiding after a brief spring rally. Nickel prices have lost 30% so far this year. 

Sounds bleak, doesn’t it?

But here’s the funny thing. During my most recent round of site visits, you wouldn’t have guessed at any of these bad news items. With the mood being decidedly upbeat.

I’ve been on the road with some of the world’s biggest base metal miners. And with government reps from some of the biggest economies on the planet.

And they were talking full steam ahead when it came to new projects.

During these site visits, we discussed investments in the tens of millions. Much of it geared toward exploration — a sector that for many investors seems completely untouchable these days.

But it’s happening. Believe it or not, in the right places around the world, the resource sector is still alive and kicking. In fact, in some cases, it’s better than it’s ever been. 

In some cases.

The thing is, this is a tough market for average projects. You simply can’t raise money–or much interest at all for that matter–in a few samples and a pitch about the glowing future for X, Y or Z commodity. 

To be successful today, projects need to be great–in size, scale and vision. And for such prospects the market is still strong, and perhaps even growing as the global competition for resources amongst the world’s emerging economies accelerates. 

So, what makes a project great? Below are five key points on what the world’s big investors are looking for today, gleaned from my meetings the last months. 

Location, Location, Location

Yes, global commodities markets are mostly down. But in many parts of the world, local markets are still strong. Be it natural gas in Europe, coal positioned to sell into Asia, or copper on the Pacific Rim, there are specific investor audiences that are very interested–even frenzied–for projects that fit their geographic needs.

Think Big

This is always a good rule–and all the more critical today. If you have a project that provides a legitimate shot at a deposit of world-leading size or scale, someone will always be interested. And “big” doesn’t stop at physical size–think also of big profits, from deposits with, say, world-leading metallurgy (I saw some in Myanmar this month) or low production costs.

Have A Vision

A project is all the more saleable if it comes with a sound concept behind it. During the bull market, it was fine to point to some great samples and say, “There’s gold in those hills!” But today, we need to tell investors if it’s epithermal, mesothermal or Carlin-style. And whatever the case, we should have proven examples of significant discoveries of the same style in the region. And good evidence about why our prospect looks like the same geology.

Keep It Lean

While remaining optimistic, we have to realize that money is tight–especially when a project is in its infancy. So we need to do everything we can to keep costs down when starting out. The days of having a chief accountant, a bookkeeping assistant, five field hands and a camp chef are gone–at least for startups. Today, we need to be all these things in one. Remember, exploration at its heart is accomplished by people driving and walking to look at rocks. Assemble a small team, make sure you have enough supplies to be safe in the field, and then pay for a discovery in sweat and boot leather.

Get Out There

It’s easy to get discouraged right now. And the thought of stumping up thousands of dollars for a site investigation on a new project might seem incredibly risky. But this is the time when great projects can be won–in many leading jurisdictions globally, there is almost literally zero competition right now. And as always, there’s no substitute for showing up when it comes to sniffing out the next big thing. Get on a plane and go.

Of course, none of this is as easy as it sounds. And perseverance is–more than ever–the biggest key to success. We may have to try once, twice or ten times–but for those willing to keep going during these tough times, there are prizes out there. And plenty of people willing to pay for them.

Here’s to getting it done,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

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