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“When You Come To A Fork In The Road-Take It”- Don Coxe Speech
Don Coxe, Chairman, Coxe Advisors LLC.
Hello Toronto-I truly wish I were with you. This is a
desire that goes back a long way.
Nearly 6 decades ago, when I started reading The
Northern Miner, I concluded that the Prospectors and
Developers Association convention must be the neatest
convention in the world, and the biggest thrill would be
to be giving the keynote address to that convention. I
could never aspire, then, to that happening. I had to
live a long time, and then I proceeded to get sick.
In that sense, it’s an abbreviation of what has happened
to us all, which is that, as of a year ago, it seemed
that we’d got what we wanted. It was all coming true-and
all of a sudden, a financial collapse hit Wall Street.
As you know, for the last 6 years, I’ve been telling
people that “We are living through the greatest
simultaneous efflorescence of personal economic liberty
in human history.”
By that, I mean people who for the first time, (after
having led lives of privation and poverty) are moving
into dwellings with indoor plumbing, electricity, basic
appliances, and acquiring access to private motorized
transportation. The people who have those things have
more personal economic freedom than 99% of the people
whom have ever lived.
What’s happened in this decade is simply that a whole
section of the world began to catch up to where we in
the industrial world had long been, thereby transforming
the outlook for the mining industry.
The mining industry was structured to meet the needs of
the Industrialized World, (plus Russia) and when the
Cold War came to an end, it meant there was massive
over-capacity, because the only major source of
non-cyclical demand for metals came out of military
preparation.
So, when the Berlin Wall fell, and then Russia imploded,
that basically inflicted a body blow to the base metals
industry across the world. Not only did this mean that
those great Gulag mines of the Soviet Union would now
have to find new customers, but in addition, that 35% of
Soviet GDP, the military, wasn’t going to be buying, so
therefore that whole great sector of demand was going to
disappear.
So for the base metals industry, you can sum up its
years of agony as beginning in 11/9, and ending in 9/11:
November ‘89 (11/9) was when the Wall fell, and that was
unmitigated bad news for the mining industry.
But then came 9/11. I was asked to speak on the CBC
radio when the Toronto Stock Exchange reopened, (ahead
of New York) and they asked me to recommend to people,
Canadian investors, what they should do.
I didn’t want to talk about it, I’d lost too many
friends in 9/11 and it was too much of a shock, and they
said, “Well, Canadians follow your work, and they’ve got
to know what to do.”
So I said, “All right, I will.”
And I was asked, “Is there any group in the market that
can be said to have benefited from this horror?”
I said, “Yes, the base metals industry”, because it had
already adjusted to a situation of really low levels of
demand and consolidation, after companies had been
competing with each other to build bigger and bigger
mines-and now we had a new war, which was going to lead
to more demand for military hardware. That, plus the
fact that the industry was concerned about profits
rather than scale of operations, meant that there were
going to be great years ahead for the base metals
industry.
I was denounced as giving a typical capitalist’s
reaction to a disaster: Hurry, hurry, people murdered in
war, get rich quick.
That wasn’t the purpose of the message. It was, simply,
that an industry which had suffered for a long time, was
about to see better times.
So when I spoke at the Bank of Montreal / Nesbitt Burns
Resources Conference in February 2002, I said this would
be the greatest commodity boom of all time, and I’ve
been saying each year-year in, year out.
And although we’ve had a tremendous setback, it will
still prove to be, from the sweep of history, the
greatest commodity boom of all time.
But we’ve had a big-terrifying-interruption.
That interruption came because the financial industry in
the United States, Britain, Spain, and Eastern Europe
and Ireland in particular, failed to take notice of
something absolutely obvious.
This wasn’t a hidden thing.
What was obvious was that since 1971, the industrial
world had stopped reproducing itself.
We had gone from the big families of the baby boom to
negative population growth, and we didn’t stop en route.
We went from having 2.4 babies per woman (that’s called
the fertility rate) down 1.4, and although it took years
to show up in the housing statistics, that means that
each new generation (in the Industrial World) is roughly
60% the size of its predecessor-that’s in the Industrial
World.
So in this decade, when the Industrial World launched a
new housing construction boom, it soon found out that
there weren’t the same eager numbers of first-time home
buyers ready to spend their savings on a home as had
appeared in each earlier cycle.
Then Wall Street and the investment banks across much of
the world went out launched a financial construction
boom, on top of that housing boom-creating complex
mortgage packages.
They were able to lump in the truly poor, the
unemployed, the uneducated, the jailed, the illegal
immigrants and the flippers to make up for the lack of
real demographic demand-pumping them out, and this was
supposedly going to be good for people.
The Unborn in the 1970s and 1980s were unable to enter
the housing market-so Wall Street just went out and
invented them.
They even created what were called the NINJA mortgages:
No income, no job, no assets. They managed to get AAA
ratings for them.
The result is that we had a totally unnecessary
financial crisis.
This is the sordid saga of how the financial industry
tried to cover-up demographic collapse and created a
crisis for us all.
We have a severe global recession.
To date, the sector of the mining industry that’s been
hurt the most is the base metals.
But this has been good for the gold-mining industry
because as various other kinds of assets fall in value,
gold reacquires its historic luster, based on the
reality that you can count on societies and
civilizations and governments and individuals and
companies to screw up, but when they all do it together
and you’ve got a crisis-the one thing they can’t destroy
the value of is gold. This has also helped silver and
platinum.
Gold, which is the non-man-made money, (even though men
have to do marvelous things to get gold out of the
ground these days) has been the big winner from the
unexampled folly of some of the richest and best-known
people in society, the financial community and people in
government. Gold has outperformed commodities, stocks
and bonds.
So that’s how we got here.
Gold is above $900 an ounce, but this unnecessary crisis
and recession have knocked base metal prices way down:
Wall Street’s worst players took copper from $4 down to
$1.50, and it’s been even worse for aluminum, nickel and
zinc.
However, what we do know is that those millions of
marching feet in Asia are still marching forward.
China and India have slowed down their growth because
there has been a big cutback in their exports to the
Industrial World-but they are still moving forward.
When Chris Patten (who had been the final governor of
Hong Kong) was installed as Chancellor of Oxford, he
said, “For the first 18 centuries, of what we call the
Christian or Common Era, the two biggest economies on
earth were China and India.”
“They didn’t experience the Industrial Revolution.”
“In the first half of this century, we will revert to
normalcy”, he said-and that’s what’s happening!
These people are prepared to work hard, to save, to have
children, and to build a better world for them.
This is a gigantic tide of history, that even the sleeze
of Wall Street can’t stop.
What it means is unalloyed good news for the entire
mining industry-it’s only a question of when.
While I was thinking of a title for this talk, I thought
of a quotation from America’s most quoted aphorist Yogi
Berra, “When you come to a fork in the road, take it.”
How does this apply to the opportunities in the mining
industry?
Well, if you are a near-term investor, or short-term
trader, the obvious choice is in the precious metals. If
you follow the yellow-brick road, you’re going to be
enjoying prosperity-right now and for the foreseeable
future.
If you are an investor with a long-term vision, don’t
forget about the road less traveled-err long, you’ll
want to be there.
All major governments and all major central banks are
reflating their economies, so base metal demand will
come roaring back.
In fact, the financial crisis has put off so many
projects, that when the global economy comes out of this
mess (as it will) what we know is that prices for the
metals will be much higher than they would have been
otherwise.
And in the meantime, you’ll want to use this detour, to
make sure you’ve got the right provisioning and to
actually build up your resources.
You are going to come back to the big base metals
operations-iron ore, copper, nickel, lead, zinc and
aluminum.
That’s what I mean by, “If you come to the fork in the
road, take it.”
It’s going to take a long time to dig out of the mess
that Wall Street created and the skills required,
unfortunately, aren’t the kind found in this room, or
this industry.
But that sordid series of decisions based on greed and
bad science is already heading into history.
Every person in this room has suffered from them, but
their power to hurt us is being drained away by the
forces of the market.
This should be an occasion for widespread rejoicing for
the mining industry-as it has been for so many years.
Right now, it’s the precious metal people who are having
a ball.
But it’s their base metal brethren who are going to be
ebullient within a few years.
It’s gonna happen.
What you’ve got to think about is, in fact, your
industry is even more important to the future of the
world now than it was a year ago.
Your industry is based on exploration, and what we know
is that the capital required for that is not going to be
so readily available, and that means it’s more important
than ever to allocate it effectively because the world
needs to bring on new resources in the coming decade.
The people who fill this room are going to be crucial to
the prosperity of the world.
That doesn’t mean they are going to be sharing heavily
in the prosperity of the world right now, but it does
mean that attractive mineral prospects are probably much
more readily available now than they have been for 5 or
6 years, and that means the opportunities are there for
those who believe.
Believing that you could put together bad stuff with
good stuff, mix it up, and make it great stuff, is the
debauched, debased, phony belief system that brought
down Wall Street.
Believing that you could create real wealth with
capital, technology, hard work, a willingness to take
risk-is the belief system that is the foundation of true
economic progress.
Not all the financial news is bad.
For example, in the United States, 90% of mortgagors are
meeting their payments, and more than 90% of the
eligible workforce have jobs.
Don’t believe Barack Obama, that this is a new
Depression. Besides, he doesn’t believe it himself
anymore, now that he has got three trillion dollars in
spending approved.
It’s easy at a time like this, to focus on the bad side
of things, but in fact this gives you a chance to
regroup and reload.
So take advantage of the opportunities that are out
there.
Take advantage of the opportunities to meet the people
who have been building this industry and are going to be
crucial to the future of this industry.
Take advantage of the opportunity to look at what can
now be achieved because the prices of mineral prospects
are back in buying range.
Who says so?
Notice that the very biggest metals consumers have
already begun to place their bet on the future-the
Chinese are starting to buy metal assets and they are
paying very good prices for them.
Of course these are gigantic and well established,
producing metal assets, but that tells you that the
Chinese believe that the future that we’ve been talking
about for all this time, is in fact going to happen.
They are smart enough to say that: We are going to take
advantage of this setback, to buy the stuff that we
actually price by our own consumption.
If the Chinese weren’t buying during a time as bad as
this, then you’d have to say that the basic thesis I’ve
been telling you for the last 6 years, was false-but the
Chinese are buying, so are the Indians.
What you know is that the future is out there-we just
don’t know how many months, or years it will take. When
it does come, it’s going to be just as beautiful as any
speaker at these conferences in the last 6 years has
been telling you.
I am not saying it’s a time for rejoicing-I am saying
it’s a time to roll up your sleeves, get to work, and
get ready for the next big mining boom.
Thank you.
Don Coxe
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