It's time to be bold, says Paul Renken, senior geologist and analyst with London-based VSA Capital. He seeks the "sizzle," or the narrative, in mining equities because the sizzle moves the story. But Renken remains selective and likes to see a significant discovery or acquisition that provides a clear path to investor returns. In this interview with The Mining Report, he recommends a veritable laundry list of companies in numerous commodities operating around the world.
Paul Renken has a broad range of experience in various aspects of the mining and minerals business. He began his career as a geologist for Canadian junior resource companies in the Western United States. Owning a stake in a private consulting firm as vice president of exploration, Renken searched for various base metals, precious metals and industrial minerals. In the U.K., he worked in the equity market media outlets of Digitallook and Hemscott before joining VSA as mining analyst in 2006.
The Mining Report: You're a survivor. Mining investors want to know what they will need to survive 2015. What's your message?
Paul Renken: Always know how much you can afford to risk in any particular situation, but it's probably the time to be bold simply because the sector has done worse than anyone has expected over the last year or so. That is essentially forcing out the weak players.
TMR: Weak players?
PR: Weak players are those looking for a short-term turn in a particular stock in order to make a short-term gain. There just hasn't been a significant move upward in virtually any of the commodities. In fact, just the opposite has happened. We've had a significant selloff.
TMR: How should investors play this market? Are you seeking specific situations across all commodities?
PR: We're being quite selective. For instance, the difficulties in the iron ore market are widely known—iron ore just dipped below $70/ton—but there are some specific circumstances that warrant a closer look, simply because they were hit early and had the opportunity to fall farther than their peers. The firm is not particularly bullish on iron ore going forward but we expect that the price will be somewhat higher next year, so there is going to be a modest recovery.
TMR: Are other commodities showing favorable support levels in this market?
PR: We think that there is going to be continued strength in diamonds and colored stones. That has been a good market this year for equity investors as auction prices have strengthened. The growth market is in Asia for polished stones, both colored and white stones, diamonds and colored gemstones like rubies and sapphires. And that seems to be continuing.
Another commodity that we like here is lithium. The confirmation that Tesla Motors Inc. (TSLA:NASDAQ) will build the "Gigafactory" in Nevada definitely strengthened the outlook for lithium. And other automobile manufacturers are attempting to make electric and hybrid vehicles both popular and commercially profitable, too.
TMR: Gemstones and lithium. Any others?
PR: We also see some good support on a longer-term basis for tungsten, simply because the market hasn't been flooded with too much material, unlike what has happened in iron ore and oil.
TMR: Please outline your investment thesis for junior mining companies in this market.
PR: We want to see sizzle in the story. It could be a deeply discounted cash flow position that the company is either acquiring or that has been inappropriately discounted. Some investors are also looking for a dividend yield that's relatively secure even though the commodity that the company produces has witnessed some weakness. Another angle is a significant discovery or an acquisition that was made via exploration drilling through a deal. These kinds of sizzle will help move these stories because there are too many junior companies where the project is going to stay where it's at without something to sell it. You also have to have confidence that the story will come to fruition rather than just a blind punt on the gambling table.