Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
By Henry Bonner
Sprott Global Resource Investments Ltd.
Key points: Michael believes that when the market is depressed, it is the time to acquire quality companies at steep discounts.
Michael Kosowan joined Rick Rule and Global Resource Investments Ltd. back in 2000 as an Investment Executive. He is also an Investment Advisor at Sprott Private Wealth. Michael holds a Masters’ Degree in Mining Engineering and is a licensed professional engineer. He is a registered representative in both Canada and the United States.
Michael has invested through previous market downturns, notably the market crash of 2008. This experience makes him an excellent resource for negotiating current market conditions. Michael spoke with me via telephone last week from his office in Toronto, Ontario.
“With the recent market capitulations, many companies are down to fractions of their valuations from two years ago, but we believe the companies who have the right elements in place will make a strong comeback. These downturns present an excellent opportunity for resource investors.”
Are there others who share your approach?
“Many successful investors have capitalized on volatile and depressed markets by adopting the philosophy best suited to bear markets – Rick Rule and Eric Sprott share this view. They have both utilized this approach.”
Can you describe this investment strategy?
“The secret is essentially this: Load your portfolio with high quality stocks and prepare to wait out the bad weather until sunnier market conditions return. Sign up for the long term by widening your time frame by thinking in terms of 3 to 5 years. Resist the urge to evaluate and validate your portfolio based on 3 to 4 weeks of performance.”
“It boils down to the fundamental principle we apply to investing in natural resources: ideally, we have the capital when the market is dry, and we have the stocks when the market wants to make its come back. In both cases, being contrarian gives us a position of strength.”
“That’s why we are currently looking for ways to deploy capital in the market – preferably through private placements — and buying companies that have intrinsic and undeniable value. Our experience shows us that downturns lead to bull markets, and vice versa. So investors should be aggressively looking to get their money into the market, while prices for outstanding companies are low.”
What is the right time to invest, in your estimation?
“The timing on investment in the gold sector is critical, and frankly, I believe the time to invest is now. In order to realize the greatest appreciation of your investment, you need to get somewhere near the ground floor. Gold prices have lost 23% so far this year – and a third of their value over the last two years — but the fundamental reasons for owning gold remain the same. With the trend towards ever increasing world demand for physical gold, and little to indicate that this trend will reverse, I believe the timing is right. In fact, we have recently seen some rebound in this sector. Will we see more? It seems inevitable to me.”
So, what kind of advice would you give our readers right now?
“My advice is to take full advantage of this present market anomaly. Start by reorganizing and loading your stock portfolio with premium holdings. You have to be willing to shake down your portfolio and get your money into the right companies. That may hurt a little; because many investors have taken huge losses on stock they were invested in and believed in. Paramount in this strategy though, is timing and quality stock picks.”
If all stocks are discounted, why not just purchase the cheapest?
“While the quality of investment is always important, it is especially critical in bad markets. Stocks thatgive you a superior risk-adjusted return will be the stars of the show and the ones you should invest in.
Choose companies who will rebound with force and vigor because they have intrinsic and undeniable value; in other words, they have substance”.
And how do investors recognize the companies who will rebound with force and vigor?
“My advice is that you delegate portfolio management decisions to an experience and trained broker or portfolio manager who specializes in resource equities. In today’s market conditions, it’s just not that easy to pick the winners anymore. The analysis and research requires more time and effort than most investors have, and also a much deeper understanding of the complexities of the mining and resource industries.”
You will find Michael as a speaker at several natural resource conferences, and on webcasts and radio interviews discussing the companies that he follows. He has recently moved to Toronto, Ontario, where he leads the investment advisory initiative for resource equities at Sprott Private Wealth, and is a Senior Investment Representative for Sprott Global Resource Investments Ltd.
Canadian residents contact Michael Kosowan at: [email protected] call1 866 299 9906. Non-Canadian residents contact Michael at [email protected] or call 1 800 477 7853.
