Today’s Money Weekend will begin out in the galaxy before returning down to earth to explore a rock bottom, contrarian mining play. Believe it or not, there’s a link between them.
In case you missed it, NASA confirmed this week that it’s going to try and snag an asteroid in the next decade and stick a team of astronauts on it. Hopefully they can grab some samples. Maybe they’ll just poke around.
But the larger story is that we’re on the front door step of the cosmos and are now — thanks to the commercialisation of space flight (entrepreneurship) — getting ready to take several practical steps further into the future of mankind.
Not since the moon landings have we been on the verge of really exploring our solar system like this. It will also change the world and create incredible investment opportunities.
One of them will eventually be mining in outer space. If you think working a deep sea oil rig is remote, what about an asteroid?
‘Asteroids are full of valuable minerals – as well as water and oxygen that can be used to support activity in space,’ wrote Glenn Harlan Reynolds in USA Today this week. Some of those minerals are precious metals — especially the platinum group. And one reason why entrepreneurs will probably soon lead the way into space even further than NASA. That’s what professor Michio Kaku told CBS News last month:
‘Private capitalists are saying, ‘If NASA won’t fund this thing, why not private enterprise?’ If they get a piece of the action, that’s going to be on the table as well, whether or not entrepreneurs can see a gold rush in outer space.’
You may have heard that the Google squillionaire Larry Page teamed up with some other entrepreneurs to form company Planetary Resources. But there’s also Deep Space Industries. The push into space should drive incredible advances in technology, some of which will no doubt flow through to other industries. Stay tuned for more on this.
To be clear, asteroid mining isn’t going to happen tomorrow or anytime soon. Any space mining program will need a lot of money. Right now, that might sound pretty ambitious to people on the ground here on earth because miners, especially juniors, are struggling to attract capital.
One group is junior gold miners. A big part of that is because the gold price is not going up, lethargic even in the face of Japan’s decision to double its money supply. That’s the equivalent of a financial asteroid. It’s also highly inflationary and sets the stage for a new boom in precious metals.
But you wouldn’t know it looking at the gold price. In fact, right now it’s probably even worse for Aussie investors as the Australian dollar strengthens against the USD!
But there’s no need to worry, according to natural resource veteran Rick Rule. He calls the downward move in gold ‘a cyclical downturn in a secular bull market’. That’s a fancy way of saying the gold price will go higher in the long term, but can go down in the short term. It’s perfectly normal in any market.
We like to remember the old Wall Street saying, ‘bull markets climb a wall of worry’. The day you hear nothing else but blue sky for gold will be the day to get your money out and buy something else.
There’s different ways to play the gold bull market. One is to buy physical gold or an ETF that tracks the price. The other is to try and get leverage to the price and buy gold stocks. This is a more risky, speculative way.
Of course, there’s a handy line attributed to Mark Twain worth keeping in mind: a gold miner is a liar standing next to a hole in the ground. That is to say, it pays to be sceptical. That’s why it’s handy to have a guy like Alex over at Diggers & Drillers sniffing around.
If you ask natural resource veteran Rick Rule, he sees a once in a generation opportunity in gold stocks. Rick Rule spoke recently for a web event called Downturn Millionaires.
The background is that gold stocks have taken a caning lately. Rule calls it an ‘extended sale’ where the market is taking down the good companies as well as the bad. No doubt that’s true. But jeez, if you want to get on board, looks like you’ll need to be patient and have an iron gut.
Rule talked about picking up bargains in gold stocks in the 1998–2002 gold bear market. That’s four years before the payoff began. But when it did, it was a monster and that’s what he’s backing to happen a second time around.
The other hard part, he said, was accepting that right now, when people are selling, you should be buying — the classic contrarian. Does it hurt yet?
And if you think that’s hard, try this for advice: if you bought a stock at $2 and its now 20c, he says you either sell the stock and admit your thesis was wrong or you buy more. If you liked it at $2, you have to love it at 20c. If you’re not willing to buy the stock, you shouldn’t be holding the stock.
We take it as the hard voice of experience. Mining is a capital intensive business, he added. No capital, no business. That means looking for companies with lots of cash that can ride out the volatility.
Another point he made was even more interesting. He said junior mining companies, before they do into production, are not asset based companies. They’re research and development businesses. They’re exploration businesses. He meant human resources are important. Don’t get tied up in statistics. It’s the people who make these deposits work.
That means if you want to own gold miners, look for companies run by people who have been successful in the past.
Callum Newman
Editor, Money Weekend
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