I made my annual pilgrimage to the downtown SF Marquis Marriott for the 2010 San Francisco Hard Assets Investment Conference. I've been a pennant-waving fan of this tremendous roadshow since my first visit in 2005, which was the very last year it was known as the Gold Conference. The name change reflects the broadening base for paid sponsoring companies, who now include explorers and producers of all kinds of minerals.
The free lectures are always very rewarding. The two most valuable presenters this year were Tim Wood and Mickey Fulp, who spoke separately on the details of mineral geology and how they determine whether a mining company's ore is economically recoverable. Here's the most important take-away for investors and analysts: A mining company's value is ultimately determined by its proven and probable mineral reserves, not the gross amount of "resources" they claim to have discovered. Furthermore, the economic recoverability of those reserves depend on multiple socio-economic and regulatory factors unique to each property.
Jim Letourneau warned his attendees about mining executives who manage multiple companies, which reveals that they're more interested in collecting "lottery tickets" on a lucky property than focusing on effectively managing a single project.
I was disappointed that Jack Lifton was a no-show for his scheduled lecture on Sunday morning. I was looking forward to his take on the massive surge in attention for the rare earth metals sector. Jack is The Man on rare earths.
Brent Cook's lecture gave some credence to the peak gold hypothesis. He noted that world gold production has declined since 2000 and that major gold producers are unable find enough new deposits to make up for lost production.
A large number of exhibiting companies this year have capitalized on the rare earth metals theme. Some of the uranium and cobalt developers have apparently realized that their trace findings of rare earths have value after all, although with some producers that value is limited to a marketing hook. You could swing a dead cat in the exhibit hall and hit half a dozen gold or uranium producers claiming to also hold deposits of rare earths. Time will tell whether those deposits are recoverable.
I miss the sporadic appearance of renewable energy producers I've seen in years past. Come on, where was US Geothermal and Nevada Geothermal? I recall seeing at least one of them in years past. They were absent this year.
Quite a few exhibiting companies had stories worth telling. Here are some highlights of companies that deserve further analysis.
Inter-Citic Minerals (ICI.TO). This is a Chinese gold producer with financial backing from leading producer Zijin Mining Group. I don't recall seeing a Chinese gold company at previous conferences. China's new strength as the world's top gold producer will bring increasing attention to exploration plays there. Inter-Citic must be doing something right, because their share price has been hovering around the value assessed by Zijin's private placement in April. Maybe their claim of a 1:1 resource to reserve conversion ratio is the reason. This one bears watching.
Nautilus Minerals (NUS.TO). Nautilus is a unique company mining one of the last resource frontiers on Earth - the deep ocean floor. They've exhibited at several conferences in the past and they're still around. Their share price saw better days in 2006 and 2007 but their technology is too compelling to ignore. The mining industry can't afford to write off players like Nautilus.
Dacha Strategic Metals (DAC.V). Dacha's portfolio approach to rare earth metals sets it apart from exploration and development plays. Trading these commodities on the open market may negate a miner's operating risks, but stockpiling them carries storage costs. An investment in Dacha is a bet that large buyers (like U.S. defense contractors) will soon look for ways to fill gaps in their supply chains.
Dacha isn't the only rare earth story at this conference. Commerce Resources (CCE.V), Avalon Rare Metals (AVL.TO), Rodinia Lithium (RM.V), and Rare Earth Metals Inc. (RA.V) all wanted a piece of the action. It's also worth noting that resource companies aren't the only players clamoring for attention at the conference. One investment bank in particular, Forbes & Manhattan, played a key role in sponsoring several companies' booths. There's money to be made in natural resource development, and mining isn't the only way to make it.
A run-down of the show wouldn't be complete without a mention of the Dines Letter spokes-models. I don't know if James Dines gets his models from the same local agency year after year, but other exhibitors should take note that his booth consistently had heavy traffic. Those gals give new meaning to technical market terms like "double top" and "bottom bouncing." See you next year, ladies!
Full disclosure: No positions in any companies mentioned at this time, although that may change in the future. I did not receive any compensation whatsoever from International Investment Conferences, the organizers of the SF Hard Assets Investment Conference and its affiliated shows.
Anthony J. Alfidi is founder and CEO of San Francisco-based Alfidi Capital LLC. His Alfidi Capital Blog publishes periodic commentary on anything and everything related to investing.