Cracking the millennial code

In this article Andrew Thake, Head of Content at Mines and Money, discusses the rise of ETFs and its impact on gold fund managers and gold miners, what the industry can learn from millennials, and the overall positivity in the Vancouver junior mining scene

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Visiting Vancouver is always a great way to make you feel better about life.

No other city has such  scenic views, clean air, healthy food, and  - having just come back from a trip there - a (reasonably) healthy mining industry.

Of course, with Canadian juniors it is always hard to tell how well they are doing with their relentlessly optimistic “this time next year we’ll be millionaires” attitude. If I were ever looking to call the Samaritans I’d want a Canadian exploration CEO on the other end of the line.

However, among all the optimism, there were genuine grounds for enthusiasm as I reviewed my trip to Cambridge House.

Firstly, the number of mining companies at Cambridge House were up (I reckon a third) YOY. There was an obvious increase in the amount of Australian companies present there. Many investors I spoke to are impressed with how Australian gold miners run their business, and, obviously helped by the Australian dollar, are looking for the next Evolution Mining or Northern Star.  

Uranium also seemed very much back in vogue, with an increase of uranium miners and panel discussions at the event. For the last 5 years people have been telling me that ‘this year will be the year uranium bounces back’, but this year it finally does look as if the 2018 supply cuts will start to have a long-term effect.  I think we’ll see uranium hit US$50/lb by year end.

Unsurprisingly, there were a lot of vanadium companies present. I understand the investment for vanadium, but I do wonder whether we’ll end up going from 20 to 220 vanadium companies (as with lithium a few years ago), which may see many of them them struggle to survive.

As always, the event was littered with gold bug speakers.  I’ve never quite understood their investment thesis which is as far can figure:

  1. The world is about to go hell in a handcart / there’s going to be a massive global recession / increasing political uncertainty / Trump’s going to hit the nuclear button, etc.
  2. Therefore, buy gold as its going up to US$5,000

Surely, if gold did go to US$5,000 wouldn’t the government just turn up on your doorstep and seize it back? And also, what use is a gold ingot going to be in a nuclear winter? To bludgeon a fellow survivor to death and then steal their food?

To me the more pertinent issue with gold is ETFs. The GLD was set up with good intentions, i.e. to make it easier to buy and sell gold, and therefore increase the demand for gold production. It’s now an US$8bn behemoth.

But the law of ‘unintended consequences’ seems to have struck.

Along with the increasing popularity of gold equity ETFs such as Van Eck’s , fund managers I spoke to admitted it was hurting their business. The number of gold and precious metals fund managers has halved over the last 10 years . Van Eck’s US$2bn gold and precious fund has recently refocused its investment strategy beyond mining stocks. Given that the gold fund management industry is US$25bn, that’s 8% of the market gone. Many other gold and precious fund managers are selling up. What’s next? Blackrock to go over to index funds?

If you are a gold miner there is some good news. Nearly everyone seems to agree that gold will break out this year and finish higher than at the start of 2019.

However, it’s still tough to stand out from the crowd if you are a gold miner. If you are an investor why bother with a gold miner when many of them don’t pay dividends and aren’t well run, as articulated by Marcelo Kim of Paulson when he launched the Shareholders’ Gold Council? Isn’t it the smarter play to invest in GLD or one of Van Eck’s gold equity ETFs? Or spread your risk by putting your money into a royalty or streaming company?

While there were mixed views about the recent gold M&A activity (Barrick/Randgold and Newmont/Goldcorp) with some saying this was bad for the Canadian mining industry others thought that Canadian miners had “had it coming” and were “arrogant and overpaid”.

One thing on which most seemed to agree was that bitcoin is sh*tcoin. Most investors seemed to concur that it was very much last year’s ‘shiny new toy’.  And as for blockchain, so what? A new way to do double-entry bookkeeping. Doesn’t sound like the most ground-breaking technological breakthrough since the internet to me. These investors aren’t necessarily coming back to mining, but they are at least starting to look at other sector investment opportunities.

In good news for miners looking for Canadian retail money,  investors seemed to be coming down from their high and realising that cannabis is just a sub-sector of pharma. In my opinion, the biggest cannabis company in 10 years’ time won’t be a Canopy Growth or another start-up; it will be something big and boring like a Glaxo Smithkline or (my prediction) Budweiser (cannabis-infused beer anyone?). It will be exactly the same with synthetic diamonds. The biggest player in 10 years’ time won’t be a start-up: it will be a DeBeers diversifying and protecting their market share.

However, one thing the cannabis industry has taught miners is how to appeal to millennials. A big topic of discussion at Cambridge House was how to make the mining industry more attractive to millennial investors.

Undoubtedly, day trader Tim Sykes made a big impression with the audience. His YouTube videos pull in over 6 million viewers, mainly millennials. In a lively debate with interviewer Marin Katusa (“Sniper vs Alligator”), they traded blows about the merits of differing trading styles. However Tim’s approach was perceived by some as a little too ‘offensive for the sake of it’, with one audience member inviting Tim to step outside (and I don’t think it was to have a discussion about his trading style).

Much better was Chris Parry of Equity Guru’s presentation on what the mining industry can do to attract more millennials. Better branding; better websites; innovative use of infographics; using an electric vehicle to sell a lithium mining company, not a dull geological chart. It’s good, sound advice that the industry would do well to follow.

Despite commodity prices not back to their highs of a decade ago, if mining can crack the challenge of appealing to millennial investors, its future is still bright.

Andrew Thake

Head of Content, Mines and Money