Third Time’s a Charm

When the economic crisis hit in 2008, I was not yet an investor. I spent my days researching mining stocks as an objective journalist.

One story I followed very closely those days was Teck Resources. The coal and base metals miner almost went under during the crisis, pummeled by a massive debt load. Teck’s share price plummeted from $50 to less than $4 in just a few months.

The company sold assets, restructured its debt, closed mines, and laid off employees. Then, as the market bounced, Teck’s share price went on a tear.

A year after its near demise Teck was trading at $40, a ten-fold increase. A year after that TCK.B shares reached $64.

Teck’s tale was particularly dramatic, but other miners followed similar paths. Barrick, Newmont, and Yamana shares all more than halved in value during the crisis, then regained almost all their lost ground over the next year. New Gold shares went on a wilder ride, falling from $9 to below $1 during the crisis and then climbing to $14 three years later.

Investors brave enough to invest during the crisis made a lot of money in that rebound. I did not – but as I watched events unfold I determined I would not miss out a third time.

My first exposure to the potential in bottom fishing came as soon as I started writing about mining. It was 2007. The markets were hot and deals were being made left and right, but some of the biggest deals of the day saw major miners paying top dollar for assets that bottom fishing investors had acquired on the cheap in the previous slump. Ross Beaty spending a few hundred million on copper projects in the early 2000s and then selling them for a few collective billion is a prime example.

Beaty wasn’t the only one who recognized that bottom and positioned for the next cycle. Rick Rule, Lukas Lundin, Eric Sprott, Robert Friedland, and many others bought when there was blood in the streets. It was a gamble: their portfolios had undoubtedly been hammered in the previous downturn so they were pulling from a limited pool of cash to make their bets.

But they did. And it worked. Each one grew significantly richer over the next five years as their bottom-fishing investments rode the bull market up.

The better the bull market got, the less it mattered exactly when they’d made their bets. Gold ran from below US$300 per oz. in 2001 to above US$1,800 ten years later. Silver jumped nine-fold over the same period. Copper climbed from US$0.75 per lb. in 2003 to US$3.75 per lb. in five years. Molybdenum, uranium, zinc, iron ore, coal – they all went on incredible runs.

To truly maximize on a run like that, you want to climb on the bull the moment it pulls away from the bottom and ride it to its very peak. That, however, is hard to do.

The bottom is usually only apparent in hindsight; the top can come crashing down in a blink.

What is easier and safer is ensuring you ride a good chunk of the rise.

Buy when it is clear things cannot get much worse. Buy more as it becomes clear an upswing is in motion, but while things are still cheap. Sell a chunk of your holdings once you’re up 30% – take your initial investment off the table and ride your free shares. Pay attention to risks and sell chunks when a particular risk increases beyond your tolerance.

Trying to pinpoint the bottom and exit right at the top is difficult and dangerous.

Riding most of the rise and cashing in at points along the way is proactive, pragmatic, and possible.

We are at a broad bottom now. GDX, the popular gold miners ETF, is down more than 70% since gold peaked three years ago. Gold itself is down 38% and has broken down through the technically significant $1,180-per-oz. level several times. Silver is down 60%. Iron ore is at a five-year low. Met coal too.

The world’s biggest mining companies are trading at decade lows. Some of the deals – when you look at value versus price – are incredible.

Buyers have to be careful. Some companies are overleveraged. Others spend too much producing each ounce of gold or tonne of coal. Some cut back so much on exploration and development that they strangled their new project pipelines. Others are highly diluted.

Amidst those pitfalls, though, there are gems. No investment is ever guaranteed but a nasty four-year bear cycle has created opportunities in the mining sector for doubles, triples, and ten-baggers.

And those opportunities cover the length and breadth of the sector. Explorers, developers, and producers are on sale. Copper, gold, silver, coal, uranium, nickel, zinc – there are opportunities in almost every metal. Companies of all kinds – project generators, single asset explorers, and multiple mine operators – are all cheap (streaming companies are perhaps the one exclusion).

Buy: yesterday, today, tomorrow, or next week. Lukas Lundin is buying. So are Rick Rule, Ross Beaty, and their uber-successful resource investing peers. They are choosing very carefully, as should you. But if you want to ride the next mining cycle, position your portfolio now.

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