I recently attended the Vancouver Resource Investment Conference, and man, am I excited about investing in Canada! You should be, too.
Reason: It’s not just for Canucks anymore.
There is so much money pouring into the Canadian mining sector that it’ll make your head spin. For example:
- Vancouver is a hotbed of Canadian small-caps. That’s because the province of British Columbia is home to 60% of Canada’s exploration companies. Mineral exploration in B.C. (as the locals call it) soared to $224 million in 2006. That’s up 20% from 2005 and more than 800% from 2001!
- Three mines opened in British Columbia last year. And as many as five more could start production in B.C. this year.
- Meanwhile, across Canada, it’s the same story. Mineral exploration expenditures tripled in just four years!
Canada now accounts for 19% of total world exploration expenditures. And spending on mineral exploration should keep climbing … even accelerating. We’re seeing projects pushing ahead from the vast forests of British Columbia to the rocky coasts of Labrador, and everywhere in between.
That’s not all Canadian mining has going for it. Merrill Lynch says the energy-intensive gold mining industry could see lower operating costs if oil prices continue to slide. Along with higher product prices, that should expand miners’ margins. Merrill Lynch expects Canadian producers’ margins to hit a cyclical high of 24.4% this year, up from 19.6% in 2006.
Goodbye Glaciers: A Benefit
From Global Warming …
Oddly enough, the Canadian mining industry has a plus that many people might consider a minus — global warming. Let me explain …
One of my favorite open positions in the Red-Hot Canadian Small-Caps portfolio is a copper explorer. Its biggest project is an existing copper mine that folded back when copper prices cratered below the mine’s production cost of $0.60 a pound in 1984.
In the past, that copper was tough to mine because it was smothered by a glacier. Now there’s a nice road leading to the mine, and the glacier has disappeared! That’s right … the glaciers are in full retreat, and in their wake is more copper.
Plus, new technological resources, such as high-tech 3D imaging and mapping techniques, have convinced this company’s engineers that the known copper mine is just the tip of the iceberg (pardon the glacier pun). In fact, some of the best, richest areas were never discovered by the original miners back in the 1980s.
I talk to the guys running the company all the time, and they keep expanding the resource. This position is up about 70% from where I recommended it — and I think it has a long way to go.
I Can Show You a Bunch of
Similar Canadian Growth Stories
I have plenty of great Canadian stocks, from gold and silver miners to oil sands producers to the uranium stock I added four weeks ago that is now showing open gains of around 40%. That’s a heck of a return for holding a stock less than a month!
That last one — the uranium explorer — is a Canadian stock that is finding plenty of uranium in Africa. See, yet another advantage of Canadian miners is that they export their expertise all over the world. When you play the Canadian resource sector, you play the world.
A boom in mining projects, fattening margins, and the global reach are just some of the reasons that the TSX-Venture exchange (Canada’s small-cap market) has outperformed the S&P 500 by 153% over the past five years.
Talk about outperformance! Of course …
You Can’t Just Pick Canadian
Mining Stocks by Throwing Darts
As one mining CEO told me in Vancouver, “People are the most precious thing in the mining industry today.†In other words, there simply aren’t enough skilled people to do the work.
The skills shortage is hitting some small Canadian miners hard. A recent government-funded study predicted that the high-growth sector will need up to 82,000 new workers by 2014. Part of the problem is the current work force is aging rapidly. More than 50% of the Canadian mining industry’s workers are between 40 and 54 years old, and 40% say they plan to retire by 2014.
This is why you have to invest in the Canadian mining stocks that have a deep bench of good people who can get the job done.
And that’s just the beginning. If you want explosive returns in Canada’s mining sector, here are three steps you have to take:
First, do your homework. You can read company MD&A (management discussion & analysis) reports, published by Canadian companies every quarter, on Sedar.com.
Second, pick companies with strong management. Good management is worth more than pounds in the ground. To size up a management team, I go straight to the source and talk to them. You’d be amazed who picks up the phone at a Canadian mining or exploration company.
Third, invest with an eye on the long term. While a 40% gain in four months is great, I think we could get 100% … 200% … 400% or more from that uranium stock I mentioned. The Canadian small-cap market is the kind of place where a little money today can potentially reap a windfall down the road.
Three years is a good timeframe. That’s what I use for Red-Hot Canadian Small-Caps because it gives near-term projects enough time to blossom into actual producers.
Now, if you just want a piece of the Canadian market, about the easiest way to do it is buying The MSCI Canada iShares (EWC). This U.S. exchange-traded fund tracks the performance of the broad Canadian market.
But, personally, I like the potential “knock-’em-out-of-the-park†returns you can find in individual Canadian stocks. This is an amazing time in Canadian natural resources, and small companies are riding the commodity supercycle on their way to becoming the titans of tomorrow.
Right now, I’m looking at four new buys for my Red-Hot Canadian Small-Caps service. For more information, see my latest report.
Sean Brodrick
P.S. Be sure to check out my blog at redhotresources.blogspot.com
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MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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