Sam Broom | Resource Sector Outlook for Second Half of 2018

In this interview from the Sprott Natural Resource Symposium, Sam Broom, an investment executive with Sprott Global Resource Investments Ltd., shares regarding his outlook for the resource sector for the second half of 2018.  Sam believes mining investors need to have their “eyes wide open” looking for value opportunities in quality companies that have sold off due to the recent commodity price drops.  Even though many resource investors are despondent, Sam believes that we could be at or near the bottom of this current sell-off.

0:05 Introduction of topic and guest

1:13 Thoughts on this year’s Sprott Conference

2:06 What Sam is picking up on in regards to investor sentiment right now

3:19 Thoughts on current M&A action in the mining sector

5:20 Sam’s updated thoughts on his 2018 top resource sector opportunities

10:41 Where Sam is currently seeing the best resource value opportunities

12:06 Sam explains his new ASX-focused managed platform

13:11 Outlook for second half of 2018

14:30 Sam’s contact info

BEGIN TRANSCRIPT:

Bill: Welcome back ladies and gentlemen. This is Bill Powers with MiningStockEducation.com and I’m reporting again from Vancouver. I’m sitting down with my friend, Sam Broom, an investment executive with Sprott Global. You can find Sam on the internet, on Twitter in particular @thenudeinvestor is his handle. Sam, thanks for taking the time to sit down with…

Sam: Bill, no problem. Glad to be here.

Bill: So we’re in the middle of the second day of the conference. What are your thoughts on the conference so far? 

Sam: Yeah, it’s been really interesting. Obviously the price action and the commodity space the last sort of few weeks and especially the last few days, I mean, there’s a lot of talk about what’s going on in the sector. I’m finding that really interesting. Obviously, all the exhibitors here in terms of companies, they’re all companies that we’ve been involved with at some point. So it’s been great to catch up with a bunch of the issuers, get the latest updates. I’m feeling really, really positive about the sector actually. I know that’s probably contrary to how a lot of people are feeling right now. But yeah, I’m really excited. I’m enjoying what I’m seeing. I haven’t had a chance to listen to any of the speakers because I’ve just been so busy catching up with clients and issuers. It’s been really good.

Bill: And what feedback have you gotten from some of your clients and attendees just by manning the Sprott booth? What feedback and what are you sensing? 

Sam: I’m sensing a lot of kind of the hips kind of uncertainty and people are just wondering, “Is this the bottom?” And I think based on the sentiment I’m getting, this is usually how it feels when you’re getting closer to a bottom in the space. So from that regard it’s been really useful to gauge sentiment and to see what the general Joe public is feeling. There’s also a lot of optimism out there. You know, when you get these sort of, you know, downward slides in the commodity prices, the cream tends to rise to the top a little bit. So it can be really useful looking at who’s able to finance, who’s got projects that are actually, you know, that are doing interesting and insightful exploration. And at this point in time, the cycle, a lot of the really good stuff, it’s just dirt cheap. I mean, they’re just absolutely opportunities all over the shop that are getting me really excited. It’s a good time to have some capital available to put to work, to put it that way.

Bill: Especially if you’re a major looking to buy a good asset. And we’ve seen that in the last month. There’s been some M&A activity. What are your thoughts on the recent M&A activity and what does it signify? 

Sam: Look, I’m absolutely huge on the M&A side of things. You know, my clients that are listening to this will know that I think, hands down, buying the takeover plays is the best thing to be doing right now. Nevsun Resources, for example, a couple of days ago which was probably one of my bigger positions on my book for my clients; we just saw Lundin Mining officially come with a sweetened deal, cash offer. You know, at the end of the day, just about every single major mining company out there is staring down the barrel of a declining production profile if you go out, you know, 5 to 10 years. And because of the way the cycle has been, they just haven’t done the exploration work and to replace reserves and resources. It just hasn’t happened. So they’ve either got two options. They either accept declining production profile, or they go out and buy something. They can do their own exploration as well.

The problem with that is it takes 5 to 10 to 15 to 20 years by the time you stick a drill bit in the ground, make a discovery to get a mine and put it into production. So if they want to avoid that decline, they’re gonna have to buy stuff. And there’s just not that much high quality stuff out there. So it’s kind of a stock pickers’ dream at the moment. There are a handful of companies that I have a very high conviction. You never know for sure but I have a fairly good idea that I think they’re gonna get bought out at some stage. It’s always great when it works out as well. And some example recently is there was one that I thought was gonna get taken out. It’s played out that way and I think we’re gonna see that really increase in the next 12 to 18 months. I think it’s gonna really ramp up.

Bill: In our first conversation about six months ago, at the beginning of this year, you shared with listeners your top three resource sectors to invest in. The first one was the agricultural commodities. Now that we’re halfway through the year, what are your thoughts on the agricultural commodities? 

Sam: Yeah, so that kind of hasn’t played out as I’d hoped yet. Some of these have actually been relatively hammered in the first half of the year. Nothing at all has changed in my thesis there. I really do think that the agricultural space is gonna be an interesting place to play. I don’t think you have to get cute with the agricultural space, even just general broad basket of exposure to the various commodities. I mean, they’re trading at multi-decade lows a lot of these commodities. I’m going to stick by that. It hasn’t quite played out over the first six months but I strongly thing that the agricultural commodity is something that investors should, at the very least, have their eye on and I think now is a very interesting time to be a buyer of agricultural commodities and, you know, even things like the fertilizer plays. And they are at 10, 15, 20-year lows in terms of sheer price. So if you’re a contrarian and you want a bombed out sector, there’s some happy hunting out there at the moment.

Bill: You were also excited about the precious metals and you mentioned that you thought they would break out one way or the other. What’s your thoughts on golden silver now? 

Sam: So yeah, we’re pretty much at the point now where I think we’ve just seen sort of a capitulation sort of sell off in the last week, in the last couple of days. You know, 1,200/oz to 1,220/oz gold is a very important level technically.  Technicals aren’t everything, but it is something good I keep an eye on. So I’m looking for some strong support here. If we do see a solid bounce here, I’m feeling very excited about the gold space. I always had sort of an eye on the second half of this year for the charters out there. There is a very large it’s been playing out for a long, long time.

Bill: I think you posted that on Twitter recently. 

Sam: Yeah, it’s a fairly common pattern. I’m not gonna pretend that I’m some magical insider. It’s highly talked about. But if that were to break out, you know, in a symmetrical fashion, you’re looking sometime between now and the end of August at that playing out. So that’s something I’m keeping a close eye on. I still think precious metals are one of the better places to be right now. Valuations and most mining companies in the precious metal space are exceptionally low and exceptionally attractive. The junior end of the market you are finding companies with high quality exploration targets. I mean, it’s risky. It’s speculation, but these guys are trading for almost cash. You know, you’re moving your cash from the left pocket to the right pocket with the exploration upside that they have. So valuations are at a point where I think they’re very attractive at this point in time.

Bill: And your third sector was the battery-leveraged metals. You said nickel is good for speculators. You also liked copper and you previously, the year previous, you liked cobalt. What’s your perspective on the battery-leveraged base metals now? 

Sam: Yeah, so that’s probably the one I got the most right from our previous conversation, I think, excluding oil. I think I was looking at things the other day and nickel has been the best commodity that I keep a close eye on over the past sort of six to eight months. It’s come off a little bit recently along with everything else. You know, the Trump trade tariff has kind of whacked the base metal sector with a sell first, ask questions later type of sell-off. But yeah, I remain bullish. I think if you keep an eye on things like the LME stockpiles in nickel, you can see that’s continuing to draw down which is a good sign. I think nickel has to go well north of $20,000 a ton before it’ll plateau out for a while. I think it’s about $13,500 now or something like that. Copper took a big whack with the Chinese. You know, the trade tariffs sort of drama there. I think copper is actually getting down to the point now where it’s very attractive again.

So I’m very interested in the copper sector. I think the copper space in general is kind of…gold is harder to analyze because the supply and demand fundamentals are very different. It’s more demand driven when it runs fearful, demand goes through the roof but the supply side kind of is more or less relevant on an investable timescale. Whereas copper, you know, you can do your homework, you can look at the supply and demand fundamentals. Unless you think the world is gonna absolutely implode and, you know, we’re not going to be building anything for 20 years and the developed world isn’t going to continue to develop. The outlook 5 to 10-year outlook for copper looks, it looks pretty dire from a producer standpoint. I mean, to that point where they just don’t have… there is no…well, very few major new development projects coming online that, you know, the supply demand fundamentals from an investor standpoint block is not very attractive.

Bill: Six months ago you shared that you are focusing on the highest quality single asset development companies and that you also like lean mid-cap producers with growth potential with highlights on gold and copper in particular. Are you still looking there? Or where are you finding the best opportunities? 

Sam: Yeah, I’m still looking. Still got a lot of single asset development plays that I that I like. I think I mentioned I really liked the Aussie space as well. And I perhaps I can get your chart so you can put it along with this. But if you can compare the performance of the Australian All Ordinaries Gold Index, which is loosely, it’s an index that tracks that sort of Aussie golds mid cap space. And you compare it to the GDX, you compare it to, probably the most similar is the TSX Global Gold Index, they’re both run by S&P Global, similar criteria. I mean, it’s like it’s a completely different commodity they’re mining or something because the ASX has just completely outperformed just about everyone else. So I remain particularly focused in Australia but there are lot of stuff and there’s a lot of stuff in Canada on the TSX and the New York Stock Exchange that I am liking. But, yeah, that is around where the takeover candidates exist. So that’s where I’m hunting at the moment and spending a lot of time looking at those takeover targets.

Bill: You’re working on a specific project that’s related to the Australian market. It’s a market-focused managed platform. Can you share more about that? 

Sam: Yes, I’ve noticed with a lot of my clients that rather than the brokerage which traditionally, what we’ve done with the private placements and private placement-centered junior portfolio, I was getting a lot more into the slightly bigger into town with my clients: like I said the single asset development stage plays; and the lean mean producers. And a lot of clients just wanted to hand me money to manage myself to take the hassle out of things for them. So I’m just in the process. I’m not quite live yet but it should be really soon. Starting my own managed platform where I will have an Aussie focus so it’s probably going to be, give or take, 50%, 60% of the portfolio would be Australian names. So yeah, that’s going hopefully launch in the next month or two and I’m really excited about it and looking forward to putting my research into something that I’m really, really passionate about.

Bill: Looking forward to the second half of 2018. What are your final thoughts for the resource investors listening to us?

Sam: Yeah. I think now is a really good time to have your eyes open and be prepared to…you do have to take some risks when things are trending down. But I think, to use a Rick Rule-sim, you have to be a contrarian in this sector or you’re gonna be a victim. Now is the time where, personally from my view, working at Sprott, I’m noticing probably the worst…I’ve been here two and a half years so, I just clipped the very end of 2015 bottom of the bear market. It’s getting to me to feel like that level of despondency right now which has me personally excited because that’s how typically it feels when you’re close to a turning point. Obviously, I don’t have a crystal ball but I think now is a really, really, really, really good time to be looking at what’s high quality and what’s sold off and is now very cheap. And because that’s what we’re seeing, that’s when the savvy acquirers get busy and that’s why I think M&A is really gonna increase in the next 12 months. So owning those takeover plays in your portfolio I think is really going to pay off over the next 12 to 18 months.

Bill: For listeners that want to learn more about Sam, you can just go on Twitter. Again, Sam’s handle is the @thenudeinvestor. And you have a blog at the www.thenudeinvestor.com. But I don’t believe that’s active right now?

Sam: Yeah, people always ask me that. The weird Twitter handle. That was my blog before I joined Sprott. Compliance reasons mean I can’t really post anymore so it’s kind of a little dated now, but there is some interesting stuff there, if you go and have a look you can see. You know, I got a little bit lucky and almost picked the bottom of the gold, the gold trend back in 2015. But, yeah, so follow me on Twitter is probably the best thing. Otherwise, you know, if you want to get in touch with me, I’m always happy to have a chat. You can either give me a call at 1-800-477-7853 or you probably what’s even better is email. My email is [email protected]. And you’ll be able to get in touch with me and I’ll always respond again.

Bill: Okay. And this is Bill Powers with Miningstockeducation.com reporting from the Sprott Conference in Vancouver. Sam, thanks for sitting down. 

Sam: Bill, it’s been a pleasure. Thanks.

SAM BROOM’S BIO:

Sam joined Sprott Global in early 2016 having spent his early career working as an engineering geologist in the consulting industry, both in his native New Zealand and in Australia. During his time in Australia, Sam became heavily involved in the mining industry and gained extensive experience across a wide range of industry sub-sectors.

It was during his time in the Australian mining industry that he gained a passion for both the natural resources industries and the markets that support them. Now, he leverages his practical, firsthand knowledge of how these industries operate with his geological expertise and analytical skills honed through years working in the engineer sector, to find the best investment opportunities around the globe.

Sam also has a keen interest in charting and other forms of technical analysis, a discipline he believes is particularly useful when dealing with highly volatile junior mining stocks that are afflicted by extreme and rapid changes in sentiment. His investment philosophy focuses on combining a sound understanding of industry and company specific fundamentals with technical analysis to fine tune the timing of investment decisions in order to maximize portfolio returns.