What this famous investor’s clock say s about resources now

Monday, 20 February 2023 — Albert Park

[7 min read]

Dear Reader,

Want to make yourself a fortune quick smart?

Easy!

Say you’ve got a rare earths deposit!

Investors will throw their money at you…and beg you to let them give you more.

Yes, the mad dance of resource investor expectations and exuberance has shifted from lithium to the next battery metal sector superstar.

For example, take a look at Arafura Rare Earths [ASX:ARU] lately.

It’s doubled since late last year, interest rates be damned!

Check it out:

But a ‘double’ like that is chicken feed to the mega gains that only the junior resource sector can bring.

You can measure the returns in the thousands when they really go right.

However, the ghost of Mark Twain haunts us all who dare to tread here.

‘A miner’, the great wordsmith said, ‘is a liar standing next to a hole in the ground’.

How to make sense of it all?

One way I do that is to stay in contact with those in the industry.

My favourite is Hedley Widdup.

He’s the chief investment officer of Lion Selection Group. Lion specialises in the junior resource sector.

Hedley was a geologist before he turned to managing money.

I caught up with him last Friday for a burger.

I asked Hedley which commodity he was most excited about.

The answer? Copper.

The rationale here is familiar if you follow the sector. Copper is due for a big demand lift from the switch to electric vehicles and renewable energy.

Plus, there’s plenty of existing demand from the traditional source of urbanisation and modernisation across Asia and Africa.

Where is the copper going to come from to meet all this? No one is quite sure. Copper grades are in decline.

And we know the big boys like BHP and Rio are interested in this sector.

BHP just made its big $9.6 billion play for South Australian-based Oz Minerals.

Hedley took a sip of his water and explained why he chose copper over all the other metals out there. It’s pretty simple.

The metal is not called ‘Dr Copper’ for nothing — copper is intrinsically linked to economic growth. And isn’t easily substituted.

That’s not all…

It’s a big market, so less susceptible to wild price swings (ala, some of the new-age critical metals…).

If you can find a junior with a decent copper project, the medium-term outlook to support economic growth is great.

I put down my burger for a moment as I pondered this.

I couldn’t let Hedley leave before asking him about the famous Lion Clock.

To explain, Hedley is not the first Widdup to run the Lion investment fund. His father started the company about 25 years ago.

He also created the Lion Clock that shows the typical movement of the resource sector.

You can see it here:

Where are we now?

Hedley finished his chips, thinking carefully. Then he explained…

The Lion Clock is driven by liquidity — that’s the amount of money that is moving into, or out of, the mining sector.

This drives characteristic behaviours cycle after cycle — hence the clock.

Lion has tracked this current mining boom since it started in 2016, and so far, it’s moved through all the characteristic steps.

We’ve seen more and more money move down to smaller companies take the risks that come with backing explorers, with a record year in 2021.

2022 was a tough year for markets generally.

Volatility like that bruises the large-cap miners, but it is fatal for the money needed every single year to fund the junior resources sector.

The hand on the Lion Clock, according to Hedley, went to 12 in late 2022, with capital raisings become hard to execute.

Historically, once liquidity drops like this it doesn’t come back.

We could call Hedley out on this. So I did.

We have seen some pretty big deals announced (e.g. Newmont having a tilt at Newcrest Mining), which are more characteristic of just before 12 than after.

Hedley might be a touch early with that call, but while investors are worried about inflation, they’re being pretty hesitant to back exploration.

And as long as that goes on it will drag down share prices.

For Hedley, that means it’s time to start hunting for bargains.

Periods of extreme volatility have historically provided some of the most lucrative investment opportunities in companies that depend on market funding.

When the market turns for the resources sector, good projects can become available at amazing discounts.

Interesting, don’t you think?

Today, Lion is cashed up after selling out of some long-term gold investments in Indonesia and is ready to go hunting for the next junior potential resources stars searching for the next big elephant strike.

So is my colleague James Cooper. He’s the editor of Diggers and Drillers — an investment advistory for the resource sector.

I mentioned the stock Arafura Rare Earths above. James recommended that one to his readers when he launched Diggers and Drillers last year.

He’s also as bullish on copper as Hedley is.

It’s an exiciting time to be investigating the junior resource space. The Lion Clock suggests now’s the time to be actively picking up what you can and kicking over a lot of rocks.

Or let James do the work for you.

If that sounds of interest, check out James’s service by clicking here.

And check out the article below for an exclusive interview with Jim Rickards.

Regards,

Callum Newman,
Editor, The Daily Reckoning Australia

Dear Reader,

Married life in Australia got off to a rough start last year. And not just because we had to live with an evil stepmother-in-law for a few months while house hunting.

My wife is Japanese. She’s used to falling prices when she goes grocery shopping. That’s because Japan has been through decades of deflation instead of inflation.

She’s also used to eating the best food in the world.

All this meant that regular shortages of basic goods and an absurd cost of living spike came as quite a shock once we arrived in Australia. You could imagine what she was thinking based on the look on her face in Coles: ‘Australians can’t even get their eggs together!’.

If the news stories in Japan hadn’t been about the same problems, I’m not sure how long we’d have stayed here…

It was also helpful to be able to explain exactly how and why the shortages and inflation were occurring.

Not that the news was any help. Instead, I had a direct line to the guy who could explain everything.

And no, this is not the fault of Putin, COVID, or maniacal central bankers.

So who — or what — is really to blame?

In this video, geopolitical analyst Jim Rickards explains exactly how we got into this mess — and why he believes we’re not getting out of it for another DECADE.

Just click below to watch now:

Jim Rickards’ new book could be his most important yet.

SOLD OUT! depicts a world of high prices, bare shelves, energy shortages, fuel panics, and low growth. But Jim also suggests how you can structure your financial life, investments, and assets to survive and thrive in this new world. To learn more, and find out how you can get a complimentary digital copy of SOLD OUT!, go HERE.

Until next time,

Nickolai Hubble,
Editor, The Daily Reckoning Australia

Dear Reader,

‘For the past 30 years, the American hegemonic project has proved both unsustainably expensive and strategically illusory.’

The 2018 National Defense Strategy: Continuity and Competition

We arrived in Buenos Aires this morning. Population: three million. Temperature: about 75 degrees Fahrenheit. Inflation rate: 99%/yr.

How can you live well when prices double every 12 months? We’re going to find out.

Meanwhile, we’re working our way through recent headlines, trying to see where we might be headed. We believe they point to a ‘cluster’ of catastrophes…financial, economic, political, and social.

The money disaster is obvious. Americans owe too much money, in debts contracted at very low interest rates. As rates rise — which they must, both in response to and opposition to inflation — trillions of dollars’ worth of debt will have to be written off or inflated away.

The other disasters are less obvious. It’s one of those that we look at today.

Top dogs

Empires don’t act like normal countries. They are the alpha male of nations. Or, as Madeleine Albright put it, they are the ‘indispensable nation’. Like the lead dog on a sled team, they dominate other dogs — by force — and fight off rivals. But as they age, they become vulnerable. It is just a matter of time before the pack turns on them.

Empires age too. They ‘over-stretch’. They get involved in too many battles...and spend too much money. Then, war and inflation, like age and infirmity, do their work…

As reported the other day, the best recent advice on the war in the Ukraine came from an unlikely source: Mr Donald Trump. It was he who proposed (before the Deep State insiders got him back on the leash) that the US leave NATO…and it was he who just followed up by suggesting that we should say ‘no’ to requests for more military aid to the Ukraine.

Alas, Mr Trump is as unreliable to his friends as to his enemies. Now, he claims he saved NATO:

‘“I hope everyone is able to remember that it was me, as President of the United States, that got delinquent NATO members to start paying their dues, which amounted to hundreds of billions of dollars,” Trump wrote in a statement released Monday. “There would be no NATO if I didn’t act strongly and swiftly.”’

So let’s leave Mr Trump and turn to more constant sources. George Washington in his 1796 farewell address warned against ‘foreign entanglements’:

‘Against the insidious wiles of foreign influence... the jealousy of a free people ought to be constantly awake, since history and experience prove that foreign influence is one of the most baneful foes of republican government.’

Words of warning

But an empire needs to act like an empire. After conquering its own southern states, it took on Spain…Germany…Japan…and then the Soviet Union…and then…and then…in his farewell address in 1961, Dwight Eisenhower warned against where this would lead:

‘…we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

‘We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.’

Taking their wealth and liberties for granted, Americans fell asleep…and the Deep State (along with the entire class of elite…which Antonio Gramsci called the ‘hegemon’) grew. Now it’s unstoppable.

Meanwhile, since the time of Peter the Great in the 17th century, Russia has periodically tried to join the family of European nations. By most accounts, this is what Vladimir Putin desired as well.

Know thy enemy’s enemy

But the hegemon had other ideas. The US/EU/NATO party was already underway in Europe, and the Russians weren’t invited. Instead of leaving NATO, the US strengthened it. And when war broke out, NATO formed up on the side of Ukraine (though Ukraine was not a treaty member). This left Russia to seek allies elsewhere. It’s finding them, in Africa…and in Latin America. Most ominously, it is creating a potent new coalition…with the natural resources of Russia and Iran, the human resources of India, and the financial and technical resources of China. They’re already sharing energy and raw materials, a rival currency and a new financial clearing system.

What will the future bring? We’ve read no more of tomorrow’s headlines than you have. But it looks like the US’s wars and sanctions may be breeding the next lead dog. Empires have to die somehow. Inflation and war are time-tested ways to kill them.

Regards,

Bill Bonner,
For The Daily Reckoning Australia