Matt Geiger: Keynote: The Case for Natural Resource Equities
Matt builds a case for why the natural resource equities historically have been the place to be and why that trend based on the demographics will continue. The world’s population is projected to continue to grow, and consumption will almost certainly increase. Matt feels that holding mining equities will outperform owning the physical commodities.
He points out that we have pulled more metal out of the ground in the last 25 years than in all previous human history. At some point in the coming decades, we will run into severe shortages. Natural resource extraction will continue to be essential for the foreseeable future.
Inflation-adjusted prices of nearly every industrial metal have fallen in real terms over the past century but commodity equities over the same period have outperformed. Resource equities have outperformed the S&P 500 on average by 2.2% per year. Matt also discusses the GSCI commodity index and shows that it is lower than it has been in fifty years.
Junior mining is a beast of its own and most junior companies are not investible while the remaining twenty percent isn’t investible either without a long-dated warrant. A “basket approach” to commodities is a recipe for disaster. G&A costs are out of control, and investors should be extremely selective when picking juniors.
His fund looks for companies with a minimum 10% management ownership, low G&A expenses, major achievable milestones, and high-quality, experienced management teams. They have a preference for prospect generators and royalty business models.
Time Stamp References:
2:00 – Reasons to own commodity equities.
3:00 – World population trends.
5:50 – Per capita consumption set to increase.
7:50 – Global consumption of resources.
9:00 – Past 90 years commodities are down in real terms.
11:20 – Mining equities have outperformed the S&P 500
12:10 – Resources are historically cheap.
13:45 – What to look for in Juniors.
17:00 – His funds overall strategy.
Talking Points From This Week’s Episode
• Real assets are low compared to financials.
• G&A Costs in juniors are out of control.
• Be very selective when picking juniors.
• Be careful of equities that dilute shares.
• Look for good management teams.
Mr. Geiger is Managing Partner at MJG Capital, which is a limited partnership specializing in long-term natural resource investments. They adhere to bottom-up security analysis and maintain a long-only portfolio of resource equities. The partnership adheres to a bottom-up security analysis within the context of four ongoing macroeconomic themes: global food scarcity, global fuel/energy scarcity, regional water scarcity, and the emerging world’s infrastructure build out. Their holdings include explorers, developer, and producers of energy, industrial, precious and agricultural minerals and metals.
You can find Matt’s latest Investment Letters at: http://mjgcapital.com.