The BarkerLetter

Greetings Investors!

I was browsing through a daily newspaper today looking for mining stories. There was nothing. Actually that’s not true. There was something on page 28 of the H section, written almost completely in jargon by some guy who looked like a kumquat.

People, we have to start doing better than this!

Not many will admit they’re interested in mining. I´m guilty of that. When I do tell people I write about mining their eyes glaze over and they wander away, except for a handful who try to convince me I’m doing something wrong. In my case the shame is even greater because I come from a mining family: My grandfather and uncle - John and Henry Rochfort - were prospectors who made an economic copper discovery in British Columbia in the 1950s and founded Bethlehem Copper, which traded on the old Vancouver Stock Exchange until the mid 1990s.

(During my infrequent visits with my uncle he would always try and get me to go up north. “Helluva lot of fun,” he said in that rapid speak that promoters use. “Helluva bunch of fellas too, great fellas, all of ‘em.” I liked the idea but was never keen on northern Canada, so I went south instead but that’s another story.)

When you think about it, there are lots of fascinating angles to mining. Exploration geology, travel, geopolitics, risk and reward, etc. I happen to think a fully mineralized hanging wall is very sexy, all that glittering metal winking at you. But how do you get the non initiated to go down the rabbit hole? As I boarded a plane recently I wondered if the people in first class would be interested in reading about a hole in the ground with a billion dollar’s worth of minerals at the end. Most of the decision makers in the world fly, and they all read the inflight magazines. That airline in particular has a publication with annual distribution of one million. I did a little more research and came across about 127 daily and weekly newspapers in the U.K. and North America and Australia with combined circulation of 50 million.

Hmmmmm…

Here’s the thing: Nobody in the industry ever reaches out to the general public. The industry almost always speaks to itself. So you’ve got everybody trying to sell to the same bunch of tired, beaten up investors. Is this a good IR strategy during the current era of buyer exhaustion? Well sure, but I think we should also be reaching out to new investors, even people who don’t invest, and especially those who hate us.

I’m very interested in non investors because I know they can be turned. I get letters of interest from them whenever oil or gold or base metals prices peak. I always return their letters.

Modern marketing holds that you need the internet to find exactly the people you want to reach. The inverse of that is finding people you don’t want to reach and turning them into believers. This kind of reverse marketing is not my own idea, nor is it new. I got it from the banks, who reasoned (correctly as it turned out), that if they presented the right offer they could sell mortages to all the huddled masses of working poor who don’t qualify.

Ok, maybe the banks didn’t quite think that one through. But here’s a better example. Hal Prince, the famous Broadway producer, calculated that the majority of people don’t go to the theater. However, almost all of those would attend one show a year if you brought it them and packaged it correctly. It’s why these touring broadway productions like Cats and Evita do so well out in the sticks.

Couldn’t we do the same thing with mining? Aren´t non investors at least capable of buying one mineral stock per year?

Some of you know I’m using non traditional channels to build my readership. Of course the reason for that is self serving but I have another, more altruistic reason: I want to clean up the industry’s image and present it to the general public in a bright, readable format, especially for the benefit of those who call us dirty. I’ve never understood why we stand idly by and let a few misguided people with green hair and an internet connection whip the tar out of us. So we’re supposed to dismantle the mining industry? Fine. But isn’t that a bit like telling kids they should abstain from sex to prevent unwanted pregnancies and the spread of STDs? Kids won’t stop having sex and people won’t stop mining. If you ban it they’ll just go back to using archaic recovery techniques like mercury (Mmmm mercury … tasty!). Nobody ever challenges their logic.

Actually I have to take some of that back. Industry groups like the B.C. & Yukon Chamber of Mines have been proactive in the past, and I’ve seen some crisp copy from a handful of IR firms. I also enjoy Jack Caldwell’s blog here on Infomine. But my point is they don’t go far enough. They’re still preaching to the already converted.

So this is day one of my one man outreach campaign, designed to bring sexy back to mining. Anyone who wants to lend a hand is welcome to drop me a line.

Careful out there.

January 18, 2008

Greetings investors.

There’s a wall of worry building south of the 49th parallel.

Nor is it without foundation. There really are tangible signs that the U.S. is running out of fingers to stick into the dyke.  Bush’s tax relief package could be the last pinky left.

Here’s the good news: I think that metals, energy and resource shares can and will weather a bear market in the U.S. due to brisk demand overseas.  In fact, just last week while I was lamenting the lack of rosy 2008 market forecasts by the major mining companies (like we had late in ‘06), I saw a report by Rio Tinto stating that metals demand will keep percolating along right through ‘08.

Credit Suisse quickly jumped on the bandwagon, citing its own numbers to prove the year will end with a severe shortfall of iron ore. (Note:  Have a look at near term iron ore producer Northland Resources trading as NAU.TSX-V).  So that bodes well for steel. 

Though I’m obviously not a doomsdayist, I don’t think we’ll see runaway stock prices for miners this year except - and this point cannot be understated - those that are currently undervalued and have really good projects in their portfolios.

By really good, I mean really high reserves or near reserves and really low projected operating costs!  

That means research is the key word going into ‘08. Be stingier with your investment dollars, more selective, more discerning, more patient, and more willing to do research.  (Subliminal message: continue to read this daily message and subscribe to The BarkerLetter).

In the meantime, hang onto your energy and precious metals shares.

Kb

December 12, 2007

Greetings investors

A reader wants to know what I think of North American Paladium, trading under the symbol PAL on the AMEX, and also as PDL on the Toronto Stock Exchange (TSX).

I always approach these deals from three angles: Chart technicals, company fundamentals, and the underlying strength or weakness of the commodity in question.

I take a top down appraoch, so let’s look at palladium first. A quick glance at the chart shows a steep price rise last spring until the sell off in August. Since then prices have made slow, incremental progress upwards and I expect this to continue for the foreseeable future, based on the highs and lows over the past  90 days.

The technicals for PAL itself show the stock to be under distribution, which has taken the price from $12 or so down to its current $4  per share range. Based on the longer range chart indicators I expect the stock to move back up to $4.80 /$5.50 but I think it will go lower before that happens. In any case I haven’t seen any signs of a reversal to the current downtrend.

I’m not rushing out to buy PAL at the present time. Basically, I’m waiting for the momentum indicator to reverse before I do. If you’re a longer-term, risk-tolerant investor you may want to take a position now and accumulate on any subsequent dips.

Let’s go back to the larger issue of PGMs (platinum group metals) for a moment. I don’t know about you but shiny objects fascinate me, and I’m always looking for the chance to learn more about them.  The Spanish conquistadors considered platinum a by-product or ‘impurity’ of silver, and tossed it out during the refining process. 

Here’s what else I’ve gleaned from Infomine’s palladium portal:

The catalytic properties of the six platinum group metals (PGM)- iridium, osmium, palladium, platinum, rhodium, and ruthenium - are outstanding.  Platinum’s wear and tarnish resistance characteristics are well suited for making fine jewelry.   Other distinctive properties include resistance to chemical attack, excellent high-temperature characteristics, and stable electrical properties.   All these properties have been exploited for industrial applications.   Platinum, platinum alloys, and iridium are used as crucible materials for the growth of single crystals, especially oxides.  The chemical industry uses a significant amount of either platinum or a platinum-rhodium alloy catalyst in the form of gauze to catalyze the partial oxidation of ammonia to yield nitric oxide, which is the raw material for fertilizers, explosives, and nitric acid.   In recent years, a number of PGM have become important as catalysts in synthetic organic chemistry.  Ruthenium dioxide is used as coatings on dimensionally stable titanium anodes used in the production of chlorine and caustic.   Platinum supported catalysts are used in the refining of crude oil, reforming, and other processes used in the production of high-octane gasoline and aromatic compounds for the petrochemical industry.  Since 1979, the automotive industry has emerged as the principal consumer of PGM.  Palladium, platinum, and rhodium have been used as oxidation catalyst in catalytic converters to treat automobile exhaust emissions.  A wide range of PGM alloy compositions is used in low-voltage and low-energy contacts, thick- and thin-film circuits, thermocouples and furnace components, and electrodes.

The market got excited about PGMs last year when their use in catalytic converters in the manufacture of car engines increased, which fueled a rise in price.  Personally, I think the use for these fine metals will grow as the world becomes increasingly electronic and fuel efficient.

Fundamentally, I like PAL. The company just closed a whopping $75 million Cdn financing at $4 per share, which is substantially higher then the anticipated $56 million Cdn. Someone at least thinks the stock is drastically oversold at the present time, and is prepared to put money on it.

Bullish!

Careful out there.

Kb

November 27, 2007

Greetings investors!

Uh uh …

First there was this proposed BHP Billiton/Rio Tinto Ltd. merger to create the world’s largest integrated mining company. Now the world’s second largest zinc producer is warning of lower earnings.

Am I the only one who thinks we’ve been too long at the trough?

Zinifex Ltd. of Australia has warned investors that rising costs, the strong Australian dollar and lower zinc prices could hold back earnings this year.  Net profit is still ontrack to exceed last year’s record result, but I think this is a harbinger of leaner times ahead.

I don’t like to be the skeleton at the feast, but higher costs and inflated currency values have created an artificially expensive operating climate for mineral explorers and producers.  A downtick or (heaven forbid) prolonged dip in metals prices could be disasterous.

Look, it’s the reverse scenario of a few years ago. After a prolonged bear market for copper, nickel, and precious metals (closer to a nuclear winter in fact), producers had wrenched down operatings costs so far that any upward moving in pricing sent profits and share valuations sky high.

In this reverse scenario, we’ll see it all go the other way.

Personally, I think BHP and Rio are both looking to their future survival, rather than a way to expand profits over the short term. They’re already planning into the next bear market. 

The only way to stay in business when aluminum and steel return to ’90s prices is to be the world’s largest volume producer with the thinnest margin.

But it’s always profitable to buy the right penny explorers, if you can get them cheap. Nobody ever went broke finding minerals, merely from producing metals at costs that were too high to sustain profitability in a dwindling commodities market.

Be real careful out there.

Kb