True confessions of a resource stock investor

[miningmx.com] — AS ONE of the mining scribes responsible for telling colleague Marc Hasenfuss that some of the resource shares he had bought were – to use his words – “a pile of crap’, I feel the need to confess my own misjudgments in this regard.

Marc, you are not alone. Just about everybody – scribes, analysts, fund managers and mining company CEOs, – has called this resource market dead wrong.

I am no exception, even though my portfolio does contain the best-performing gold junior stock in the entire world over the past six weeks.

That’s ASX-listed Mintails. The share price has been rock steady throughout this entire period, but that’s because trading in the stock was suspended early in September.

I chose to view this as a brilliant master stroke on the part of management in strategically getting their vulnerable stock out of the firing line, rather than the real reason which is that the stupid #@$%%%## ran out of money.

But you and I are amateurs at the end of the day. Let’s take a look at the how some of the professionals have performed and, to set the tone, let me report a comment from one of the delegates at the recent Denver Gold Forum.

He told me that all the fund managers staying at the Denver Hyatt Regency, where the conference took place, “had been given rooms on the lowest floors of the hotel with windows that could not be opened’.

Why? Well, take the following example involving top UK fund Blackrock Investment Management, which is staffed by some of the toughest and smartest capitalist exploiters around.

In June, Blackrock took a big chunk of a syndicated US$80m loan made to Canadian junior gold miner Rusoro, which is following a strategy of consolidating the Venezuelan gold industry.

The loan is convertible into Rusoro shares at C$1.25 and Blackrock clearly figured they had plenty of headroom given that Rusoro had fallen from a 12-month high of C$2.72.

Rusoro shares subsequently made it all the way down to C$0.25, from where they have just recovered to about C$0.38.

Then there’s Nautilus Minerals, a cutting-edge mining technology company looking to mine high-grade base metal deposits situated on the ocean floor near Papua New Guinea.

It has heavyweight backers in the form of Anglo American and Teck Cominco and, most importantly of all, it is fully funded to come into production from 2010.

That’s fully funded as in it has all the cash it needs and is not looking for any more under current impossible market conditions, unlike #@%%%@ Mintails.

Nautilus management gave a superb presentation at the 2007 Denver forum and so impressed one fund manager that he went in “boots and all’ at about C$4 a share.

Nautilus had dropped to about C$2 a share by early 2008, at which point I bought in. It subsequently dropped to a low of C$0.73c, from which it has recently recovered to about C$0.90.

That puts a whole new meaning to the term “under water’. The unnamed fund manager’s nickname is now “Captain Nemo’.

The list of disaster stories just goes on, and on, and on. It’s scary to reflect on how drastically conditions have changed from just a few years ago when, as one of my mining entrepreneur contacts puts it, “the ducks were quacking and you had to feed them’.

By that, he meant the funds were desperate to find projects to invest money in.

Desperate, I hear you say? Well, how about this one. At the height of the junior mining boom a company called Falkland Islands Gold raised ₤10m on London’s AIM market to go exploring for gold on the Falkland Islands.

When you boiled the prospectus down to the basics that money was raised on two basic facts. The first was that the company’s geologists had found traces of alluvial gold in various river streams on the Falklands. (They were actually looking for diamonds, but so what?)

The second was that 500 million or so years ago the Falklands sat adjacent what is now the south-east coast of South Africa before continental drift separated them. That meant the Falklands were in what is known as a “good neighbourhood’ by geologists because of their former proximity to the Witwatersrand.

Of course they did not find any gold! Those were the days.

But this meltdown is now getting personal. I have had enough. I am required to disclose my investment holding in the company concerned at the end of any article I write which, of course, I comply with.

But in future, I may borrow from the brilliance of the “Blackadder’ series and adapt the epitaph Edmund Blackadder wanted on his tombstone to: “The writer owns shares in Mintails . and he’s bloody annoyed!’