March 7, 2013 | By Tekoa Da Silva
I was able to connect with the legendary Don Coxe this week, chairman of Coxe Advisors LLP, during a time in which investor sentiment in the mining and precious metals sector has reached levels of “despair and cynicism”, the likes of which Don has never seen before.
What was encouraging to note however, was that in response to investor sentiment, large mining companies are cutting projects and plans to build new mines—which according to Don, will extend and further heighten the next up-cycle, as well as create shortages in the metals later this decade.
Reflecting on the recent BMO Metals & Mining conference, Don explained that, “The new CEO of Barrick…promised that after they complete their last big project, which will be done in two years—they’re not going to be developing any new mines for a long time. You never once heard that kind of statement being made at a conference from 2003 to 2012…looking further out (because the commodity boom is still intact), we won’t be getting a new generation of mines being brought in 3-4 years from now. So the next shortages will probably develop later in this decade.”
Don further added that, “I have not seen such despair and cynicism like this before…I’ve been going to conferences for so long, and [in the past] there would be doubt expressed. But not the kind of throwing in of the towel which permeated this conference…[However], the old saying is that it’s always darkest just before the dawn…We have is pessimism now, [but] optimism will return. Optimism can be retained for a whole decade…therefore, the pullback that we’ve had is something I would regard as temporary, as painful as it is…This is the stuff of the next big bull market, but what you don’t know, is what the gestation period is.”
When asked about the value proposition of mining stocks here at these levels, Don said,“If we have gold going back up to $1900 an oz., which I think is a modest goal for it, these companies are not going to have huge depreciation from bringing on new mines that take 6-7 years to build. What you’re going to see is cash flow and dividends for stockholders at levels you could have only dreamed of five years ago...and what you’ve got now, is that on the basis of the price to earnings ratios, price to cash flow ratios, and the price to reserves ratios, these [companies] are at near record lows. In other words the endogenous value in these stocks is spectacular.”
With respect to gold itself and calls for the end of the bull market, Don commented that, “Faith is about values, and gold is the only [thing] that’s got a long-term record as being a store of value under all civilizations that we know of for the last 10,000 years. But the fact that there’s been this disappointment and despair now, does not mean that gold has lost it’s basic value. It’s simply that too many levered players were in it.”
“…The world central banks are going to be creating more demand for gold the next time around than we’ve seen up until now…they are as we speak, busy at work creating the next bull market…I have great faith in their ability to create the right intellectual, emotional, and financial environment for the next gold bull market.”
This was another powerful interview with one of world’s most successful commodity fund advisors. It is an absolute “must-listen” for serious investors and market students.
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Tekoa Da Silva
Bull Market Thinking