How to Play the Mining Industry: An Insider’s Guide

29.12.2016 • Gold and Natural Resources

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Chris Lowe – Inner Circle (United States) –

I’m going to tell you a little story right now, I’m going to tell you a good story. Good stories have happy endings. And I’m going to tell you a little story which really illustrates this from my point of view. I’d been coming down to Australia occasionally for 30 years and the 1st time I came down in the late part of the 70s I attempted to compete with local investors was in a very, very, very strong market. I was a very young guy, I’d made a lot of money and I was infected with this hubris. I thought that the bull market of the 70s happened because I was smart. And I learned a fairly ugly lesson, like many of us have learned in this last market. But by the 1990, 91, 92 markets you know I’d been in the business, I’d been through a couple of cycles. And I was able to come down here in 91, 92 when this market was flat, flat, flat and make a lot of money. I was able to out-compete the local investors in this market because they forgot to show up. They forgot to show up. Even a 60 year old like me could win the 100 meter dash if I’m the only guy running.

Same thing happened, 98, 99, 2000, 2001. It wasn’t that I could out-compete the local brokers and the local investors, it was that they went on strike and I showed up. And I want to tell you a story from that period of time. I’m telling you this purely to fire your greed by the way, because I know I’m going to need to do this to make my case. You’ve been through the fear; I need to excite the greed. In 1998 or 1999 somewhere like that, I was out at Kalgoorlie at Diggers and Dealers. And there was a couple of interesting things about that; I was the only, only North American out there. Which meant I was extremely popular, I was fresh meat. It was wild, I was young and strong then so the sharks couldn’t quite get me, I could bat them off. But one of the things that I was able to do, I met this guy, wonderful, wonderful, wonderful Australian guy, geologist named John Bershoff. And he had everything going wrong. I mean he didn’t tick one box right.

He was in exploration and nobody was funding exploration because they were losing too much money on their production. And he was a micro-cap. People said ‘God, never
again, I’m not going near those penny stocks for the rest of my life.’ Nothing, nowhere, never, never. And, but best of all, he was in Uranium.

Uranium has been in a bear market for 20 years. If you mentioned Uranium to somebody in 1998, or 1999 they had one of two responses, either, why bother, it’s never coming back or you bastard, Chernobyl, Hiroshima, Nagasaki, you’re profiteering on misery and stuff like that. No sense that if there was no uranium the lights wouldn’t come on — but anyway. That’s a different story. I took an immediate liking to John Bershoff and an immediate liking to a little company called Paladin. And I wrote him a cheque at 10 cents. I was the only guy in the world who would write that cheque,
and the stock, pretty immediately, went from 10 cents to 12 cents and I discovered later as a consequence of my talking about it in no market, I was the bull market. And so I talked the price up and encouraged by the fact the price had gone up wrote him another cheque at 12.5 cents, victimized myself by 25%, much to his delight. As always, of course, I was early. And the recovery in uranium that I had expected — well, god didn’t listen to me and it was several years later that it took place and the price of Paladin began to deteriorate from 12 cents to 11 cents, that was OK, that was no test, been through that. 10cents no worries, 9cents I was a little early, 8 cents, does somebody know something I don’t know? 7 cents, oh this is overdone I’d better buy
some more. 6 cents, 5 cents, 4 cents, 3 cents, 2 cents, finally, I mean you brought a bunch of stocks at 12 cents when the stocks at a penny you’ve got a choice — you’re a buyer, or you’re a seller. Those are your two choices — you’re not a holder. You’re either really, really right or really, really, really wrong. Been there, done that both ways. I’m just going to tell you about the good one. And mercifully for us, the group of us got together and said is our uranium thesis correct? Well, the stuff was selling for $8 a pound, it cost the industry $20 a pound to make it; they were losing, $12 a pound, and trying to make it up on volume. The industry was certainly in liquidation, which meant one of two things had to happen. The price of uranium had to go up or around the world the lights would go off. We decided it was more likely that the price would go up.

And it did mercifully. From that bottom in 2001 to 2005 the price of uranium went from — many people will remember this — $8 US to $130 US.

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