Monday, May 28, 2012

Silver, China and Graphite – New York Hard Assets Conference Review

I attended New York Hard Assets, May 14th and 15th and found there was a notable decline in enthusiasm and attendance from the previous year. The exhibit hall crowd seemed thin on both days, and the main speaker hall attracted the most attention. It seems when the markets are down, people seek a guru for guidance and that explains why most people made a beeline for the keynote presentations and shied away from the exhibitors. In my opinion, this is a time when thorough due diligence before a show will pinpoint interesting and undervalued companies. Then we can visit selected booths and ask questions with the CEO’s full and undivided attention. Meeting face-to face is a valuable and underused component in a speculator’s due diligence strategy.  I managed to hear some speaker presentations, and here are three who caught my attention:

Eric Sprott, of Sprott Asset Management, gave a talk entitled: “Mania, Manipulation and Meltdown”. Eric talked about how the markets are manipulated and applauded GATA’s work in this arena. He explained that central banks and governments surreptitiously suppress the price of gold as they don’t want the price of gold to increase to an honest level. He pointed out that the price of gold in any fiat currency reflects their inflated weakness. Eric reminded us that at this time last year; silver was at a near-record 49.50 and gold reached $1900 in August. Despite the fact that both metals have been in a 12 month correction, he predicted that this is temporary and both metals will reach new heights this year and beyond. He stressed that there will be no recovery in the US Markets and encouraged people to look at what is happening in Europe as well as the amount of money printing going on. He asserted that both gold and silver will ultimately shine the brightest and encouraged everyone to “stay the course”. He still refers to silver as the "investment of the decade" and to gold as the "ultimate currency".

Gordon Chang, Forbes, gave insight on why China is not booming. He warned the Chinese economy is faltering and is much worse than official numbers portray. The biggest threat is inflation, in addition to a property bubble, a volatile stock market and capital flight issues. Gordon mentioned the heavy export component in the Chinese economy and predicted a decline with the world going into a “double dip downturn”. He suggested a country with a large industrial manufacturing and export portion to its economy has the most to lose during a depression; much like the United States in the 1930s. Because of this, he thinks that China will suffer the most in the coming depression.

Gordon said that with China’s fragile economic state coupled with increasing mass insurrections and protests (some very violent) against the communist regime, anything can happen. He believes there will be a failure in the Chinese regime in a very short period. Gordon also pointed out the “One Child Policy” has problematic ramifications when considering that a single child must support two aging parents plus grandparents in a society with no social safety net.

Mickey Fulp, The Mercenary Geologist gave a compelling presentation entitled, “Graphite: The Newest Next Big Thing”. He pointed out that when he started looking into graphite’s potential over a year ago, there were only two established companies listed on the Toronto Venture Exchange in graphite; now, there are over 50.

He stated that graphite prices have risen due to strong demand, lack of investment in new mines and export restrictions by China (China controls 75% of production. Graphite has major industrial uses including: Refractories 35%, Batteries/Storage 25%, Lubricant Crucibles 10%, Foundries 7%, Pencils 4% and Other 19%.

Mickey thinks that graphite “is an up-and-coming semi-metal that has very strong upside not only for the short-term but the long-term.”

Despite a huge increase in the number of companies with a graphite play, there are “few contenders and many pretenders”, Mickey said. These are the companies that he called the “cream of the crop” based on his key criteria of project (in particular, safe geopolitics, good infrastructure, high grade, favorable metallurgy, and low operating costs), share structure and people: Flinders Resources, Focus Graphite and Northern Graphite.

Even though markets are getting hammered right now and the general sentiment in the junior resource sector is quite glum, I came away from this show with new knowledge and plan to take a hard look at specific graphite companies. I will adjust my investment strategy to use these volatile times to choose entry points on some great opportunities. And yes, I remain long on both gold and silver as a hedge against inflation and fiat currencies. See you at the upcoming Vancouver Cambridge House Investors Conference June 3rd and 4th!

Kirsty Hogg