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Agora Resource Investing Debate, Moderated by Rick Rule

by Brett on July 27, 2012

Rick Rule moderated Agora’s Resource Investing Debate, featuring:

-       Brent Cook, Geologist, Editor of Exploration Insights, a mining and exploration investment letter

-       Matt Badiali, Editor of The S&A Resource Report, a monthly investment advisory that focuses on the oil, energy, and mining sectors

-       Marcio Rocha Mello, CEO and Founder, HRT Oil & Gas, one of the leading oil companies in Brazil

-       Byron King, Editor, Outstanding Investments, an energy and mining focused newsletter

Rick Rule: What adaptations have you made in this down market?

Brent Cook has continually worked through his portfolio, evaluating companies and upgrading positions.  He believes the resource downturn will eventually present good opportunities to buy a company or property for less that its real value.

Matt Badiali has spent more time focused on fundamentals, trying to reduce risk, and raising his cash position.  One of the problems with a falling market, he said, is that your average investor goes into denial

“It’s best to sell now and stack cash, because it’s going to get exciting really soon.”

Byron King used to start his evaluation by look at company assets, management, business plan, and cash.  Now he looks really hard at cash, and is very nervous about companies that are going to burn out inside of six months (so much so that he will not recommend them).

Rick Rule: Think about the next 2 years.  What adaptations need to be made over the next two years?

Brent Cook believes “We’re seeing the good taken down with the bad” with relentless selling regardless of intrinsic value.

Matt Badiali is very concerned about the price of oil.  “I think it’s going to crash.”

He is shifting focus to uranium – “Anyone flinching out there when I mention uranium?”

Uranium is the most important fuel for electricity, he pointed out, as natural gas hasn’t really gotten moving yet, and we are moving away from coal.

Byron King believes that some of the technology in the pipeline will dramatically change the resource world for the better.

However he warns that all we need is a major “fracking Fukushima” – a fracking disaster that could completely alter the energy landscape if it happens.

“The oil prices that everyone thinks are going down will go through the roof.”

Rick Rule: What’s the worst mistake you made during the last upcycle?  How do you plan to adopt in terms of your own investments and advisory service?

Brent Cook admits he got caught up in the excitement of the bull market.  Though stocks were getting expensive, his quandary was: “You could sell them, but what do you buy?”

Matt Badiali also fell in love with a lot of projects, but is being quite careful at the moment.

“Right now, if your investment doesn’t have cash, you’re in trouble.”

Marcio Rocha Mello: “I have never made a mistake.  What is a mistake?  It’s perception.”

This incited another roar of laughter from the crowd.  Though his insights don’t translate well to the written word, nobody lights up the room like Marcio.

Byron King admits he neglected to sell on the way up.

“Sell on the way up, buy on the way down.  Period.”

“We have plenty of opportunity to buy on the way down now.”

Rick Rule, after Marcio turned the table and asked him his own question:

“I made the substitution mistake Brent made – if I sell, what do I replace it with?  The answer is cash.”

Rick Rule: The 2008 experience was a circumstance caused by symptoms or circumstances we haven’t addressed with regards to liquidity.  How are you adapting yourself to the possibility of a “psychotic break” – a 2008 style event – or can you?

Brent Cook agrees that what caused the 2008 crash has not been resolved.

He is personally is sitting on half cash, the other half in “worthless juniors”

Matt Badiali believes “the companies are in trouble.”

He visited a company this week whose share price has fallen from $1.50 to $0.15.  They have 4 months of working capital left.  He sat down with their CEO, who was in denial that their assets are worth far more than they are trading at – and they have no plans for a “psychotic break”.

He observed that these stocks still have no volume, so it doesn’t take much selling to send the market much lower.

He shared that he has only has a single stock left in his junior resource portfolio for his newsletter – much to the angst of his subscribers who are itching to buy something.

“It’s not time to buy yet.”

Marcio Rocha Mello’s shares went from $9 to $1.50.  “I am living this hell now.”

Byron King is not looking for a break down – “I’m looking for a break upwards.”

Rick Rule: Is the resource market intact, or did the resource bull market only last 10 years?  Are you adapting to a world in which we are still in a resource supercycle, or one in which we are in resource liquidation?

Brent Cook believes we cannot find and produce enough metal to meet demand.

“Five to ten years from now we will need more metals than we need now, and we’re not replacing them.”

Matt Badiali commented that copper’s price performance has been pretty robust in the face of problems from the US and Europe.  But he’s quite nervous about energy.

“We’re now up to our eyeballs in natural gas and natural gas liquids.”

The US is consuming gasoline at 1997 rates, he pointed, out, because the economy is weak, oil demand is weak in Europe, and weaker than anticipated in China.

“Oil is being trucked out of North Dakota because it can’t be shipped out fast enough,” he said, referring to our new neighborhood gusher.  He believes oil will drop until the economies in the US, Europe, and China pick up again.

Marcio Rocha Mello’s disagrees completely on Badiali’s demand prediction.  He believes oil is going up globally, as natural gas is not as plentiful abroad as it is in North America at the moment.  “If you go to South America, or Japan, there is no gas.”


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