5 minutes with Frank Holmes, CEO and CIO at U.S. Global Investors
Published: 7 August 2018 12:32
The world’s economy is growing but volatility, especially political, continues to impact metal prices. This creates an interesting dynamic for miners and investors to operate in. We interviewed Frank Holmes prior to his keynote presentation at the annual Mining & Investment Latin America Summit, in this 5 minutes interview he shares his views on how the current situation is impacting mining and the key aspects when assessing mining projects for investment.
Generally, we like producers with an attractive portfolio of active, above-grade mines and strong balance sheets that show low debt-to-equity, above-average cash flow return on invested capital and above-average operating cash flow-to-enterprise value. Right now, junior gold company valuations look especially attractive. Frank Holmes, U.S. Global Investors
Miners & Investors - What is your overall sentiment/position on the mining industry globally? Do you think that the worst is behind us?
Frank Holmes - Looking at gold specifically, it’s likely we’ve already mined the low-hanging fruit. We’re seeing fewer large deposits being discovered, many of them in areas that are prohibitively expensive to operate in. The good news is that gold will never be in short demand. If anything, demand will rise as China and India—the number one and number two consumers of gold—become middle- and high-income nations. Most assets work in cycles, gold included, and as the supply-demand imbalance pushes gold and precious metal prices up, I expect to see miners increase their exploration budgets.
As for industrial metals, demand remains strong with China’s “One Belt One Road” initiative taking shape, Donald Trump’s infrastructure plan and the continued industrialization of emerging markets, including the construction of resource-intensive civil works like the new airport in Lima.
Miners & Investors - Which metals are you interested in and why? What would drive you to invest?
Frank Holmes - Besides gold, I think industrial metals that stand to benefit from greater electric vehicle (EV) demand are interesting right now. The world is going to need even more nickel, cobalt, graphite and other metals to produce the lithium-ion batteries that power EVs, which, by the way, require three to four times as much copper as traditional gas-powered vehicles do. As my friend Robert Friedland, Ivanhoe Mines founder and chairman, likes to say: “You’re going to need a telescope to see the copper price in 2021!”
Miners & Investors - When assessing companies and projects, what are the first things you look for when making investment decisions?
Frank Holmes - Generally, we like producers with an attractive portfolio of active, above-grade mines and strong balance sheets that show low debt-to-equity, above-average cash flow return on invested capital and above-average operating cash flow-to-enterprise value. Right now, junior gold company valuations look especially attractive.
Miners & Investors - Where do you see the biggest opportunities, and risks, across Latin America?
Frank Holmes - To nobody’s surprise, the biggest opportunity is Latin America’s still relatively underexplored resource richness. A number of companies in attendance are here because they have discovered assets with world class potential. When I said earlier that we’ve already mined the low-hanging fruit, Latin America is one of the few exceptions where world-class assets may still be out there to be found. Risk-wise, investor protections and lack of clear processes. In history, common law countries have grown and developed at much higher rates than civil law countries. I don’t think that’s a coincidence. Common law countries have historically focused on investor and asset protection, which in turn incentivizes risk capital to speculate on discoveries. Latin America has made great leaps forward, in some countries great leaps backwards, but foreign (and domestic) investors need even more stable, well-defined processes so that these companies can continue to attract risk capital.
Frank Holmes will be speaking at the Mining & Investment Latin America Summit on the 29th and 30th October in Lima. Full details of his presentations can be found here.
- Returning to Lima: Latin America's biggest gathering of Miners, Financiers and Investors
- USGI: As Trade Tensions Intensify and Global Outlook Sours, Gold is Peaking
- Frank Talk: US Global Investors on the Gold Rally and Rise of Quants
- Frank Talk: US Global Investors on Commodity Market Drivers
- Drivers of Gold-Mining Sector Consolidation and Impact on Smaller Companies
17 Apr 2018
13 Dec 2017