An astonishing number of today’s high tech, aerospace, ‘green’ and military applications are dependent on material performance specifications that can only be met by the unique characteristics of a variety of precious and specialty metals.
The Emerging Trends Report has identified 45 precious and specialty metals, not including gold, that are both critical to these sophisticated applications and experience some form of supply threat that will support these metals’ prices going forward, whether from physical scarcity or dissipative use, nationalization risk or byproduct sourcing, a lack substitutes or regular supply interruptions.
Australia is uniquely positioned to supply world markets with these metals: at least 38 are, or soon will be, mined in Australia.
We are convinced demand for these metals will exceed supply as emerging market manufacturers move up the value-added chain to compete with those in developed economies, which represents a long term trend we wish to begin capitalizing on now, so we are circumnavigating Australia by four-wheel drive vehicle conducting a boots-on-the-ground screening of precious and specialty metal projects.
Our goal is to recommend sound listed companies well-positioned to supply demand for these critical metals going forward. (Our research proposal is available here)
This represents a significant investment opportunity: despite possessing stunning resource wealth and being ideally situated to supply growing Asian demand, the vast majority of Australian listed companies are quite small by North American standards and are not widely covered even in Australia. Few companies can afford the expense of getting their ‘stories’ out to international investors, so their operations are not widely known or understood—yet.
Gracious hosts to begin with, the fact that we are undertaking a project of this magnitude that will help bring Australian projects to the attention of North American and European investors has helped to open doors for us simply because no one has undertaken such a project before—and everyone stands to profit from the endeavor.
What we are finding is astounding, and we anticipate issuing 30-40 reports over the next two years or so based on our evaluation of executive teams and mine visits. The majority of these reports will take the form of Investment Reports, which constitute long term ‘buy’ recommendations on companies likely to meet coming demand; we will also, however, be issuing an undetermined number of Speculative Briefs, which are riskier but highly prospective special situations that come to our attention during the course of our trip around Australia.
We have expected our report production rate to be erratic due to our screening process, travel time, scheduling conflicts, weather-related delays and the remoteness of many of the projects we are visiting, but we are trying to produce an average of one report per month.
To give you an idea of our screening process, to date (July 1, 2010), we have spoken with more than 35 companies, interviewed 17 executive teams and made 7 site visits; this has produced two (2) Investment Reports (a complimentary copy is available here), one (1) Speculative Brief (a complimentary copy is available here), and our next two reports are in the works.
As with any adventure (and what is an adventure but a plan gone awry?), we have been presented with challenges unforeseen in the planning stages that have forced us to adapt our approach to in-country realities.
Everything has been taking longer and is more expensive than we envisioned. Although the time has been well-spent, our progress has been slowed because we did not anticipate the extent to which, regardless of the state in which a project is located, many of the head offices we must go through both to interview the executive teams and to arrange site visits are located in Sydney, the financial capital of Australia. We now expect to experience similar delays on a regional basis in Perth and Brisbane.
Even this early in our survey, interaction with Australian mining companies has led us to broaden the scope and range of our specialty metal interests. For example, six months ago we were not aware of the pending shortages of fluorspar, graphite, magnesium, scandium and zirconium, the latter four of which are in or near production in Australia.
We were also blindsided by the Rudd government’s introduction of the Resource Super Profits Tax, which threatened to undermine Australia’s sovereign risk rating as well as serving to freeze foreign capital investment in Australia, which is critical to resource project development.
Fortunately, the Australian people have a better understanding of the role of business and the contribution of the mining sector to its flourishing economy than the increasingly leftist Labour prime minister, who was unceremoniously booted from office. His successor, Julia Gillard, who was also a member of the so-called ‘Gang of Four’ that produced the economy-killing tax, is now scrambling to keep Labour in office and has withdrawn the more blatantly Chavez-like aspects of the tax and reshaped it into the friendlier Mineral Resources Rent Tax, which will introduce a much less punitive tax regime that will apply only to the iron, coal, coalbed methane, and oil & gas industries. The conservative Liberal party opposes the tax entirely for a variety of reasons, not least being the precedent it sets in singling out specific industries for taxation as the reward for success, and has vowed to make the proposed tax the primary issue of the upcoming election.
The critical take-away, from our perspective, is that the sectors and companies we are investigating will not be subjected to additional taxation, which should help thaw the freeze on direct foreign investment in their projects—albeit such confirmation is unlikely to come before the federal elections later this year. Although this suggests the recent sell-off in Australian equities constitutes a buying opportunity, until the matter is resolved we will maintain the approach of being too conservative: for the time being, we will continue to focus exclusively on companies whose projects are fully funded and not dependent on the capital markets in the near to intermediate term.
Circumnavigating a country the size of Australia is a significant undertaking—one we have in fact moved forward by a year in order both to position ourselves early in this long term trend and to take advantage of the window of opportunity we see in North American markets preceding the mid-term elections.
Where we expected the trip to last 6 to 9 months commencing in April of 2010, we now estimate the trip will last a minimum of 24-30 months.
Advancing the trip by one year to take advantage of this opportunity stretched our budget. We have been able to raise a significant amount of money from Sponsors, who in return for financial support receive the aforementioned reports well in advance of the broad markets.
Further, to raise awareness regarding our venture, we are doing regular 8-13 minute radio segments on the Al Korelin Investment Report (http://www.kereport.com) about what we are learning and experiencing in our travels. Our March 2010 interview with The Gold Report (http://www.theaureport.com/pub/na/5879) was so popular that we have also agreed to do a monthly in-depth interview about our findings, most recently about the Resource Super Profits Tax. Both are archived on our site.
Interestingly, the Australian press has started to take notice of our venture too: http://www.theaustralian.com.au/business/mining-energy/golds-safe-haven-status-is-starting-to-slide-as-metals-take-a-beating/story-e6frg9ex-1225855204550
Consequently, with the time horizon extended and expenses mounting, beginning July 1, 2010 we have decided to raise additional funds by offering these reports to a broader readership on both an individual report and Annual Subscription basis.
For details regarding how to participate in this exciting venture, please click here, but in a nutshell, 3-4 weeks after our Sponsors have received a report, which will provide ample time to conduct due diligence and to take positions in the recommended equities, we will distribute the reports to Annual Subscribers and then make the reports available for purchase individually through our website.
Since the majority of these companies are unknown outside of Australia, this will provide considerable lead time on the broad markets before word gets out regarding the potential of these projects. As the trip progresses we anticipate being able to raise money as public interest gathers momentum and news of our success is disseminated by sponsors and subscribers.
And 3-6 months after our return, what we will have learned as well as the collected Investment Reports and Speculative Briefs will be revised, updated and compiled in what we intend to be the definitive work on Australian precious and specialty metals, complimentary advanced copies of which will be provided to our Sponsors and Annual Subscribers.