Commodities Investing: The secrets of successful resource investing

Posted November 27, 2007

"Investing in international commodities plays, especially a place like Russia, you need to focus on three things. That’s always: people, property, and money." — Andrew Mickey

This is the transcript of the TFN Smart Investing Market Insights program "The Dirtiest Market in the World", filmed on 11/21/07. Host: Krista Das; Guest: Andrew Mickey, editor, BreakAway Investor Baltimore — (TFN):

Krista Das: Between protecting yourself against the falling dollar, worrying about the housing market or wondering what the Fed’s next move will be, today’s investor has a lot on his plate and few places to turn for safe investment bets. However, my next guest has figured out a way to make money in these turbulent times. It took him over 6 months and 10,000 air miles to unearth the secrets of the world’s dirtiest markets. Andrew Mickey is the editor-in-chief of Breakaway Investor and founder of Small-Cap Commodity Prospector.

Andrew, what exactly is the world’s dirtiest market?

Andrew Mickey: Well, there are many, but one of the world’s dirtiest markets is the nickel market. Not because of the pollution that has ruined small towns like Norilsk in Russia, but because of the consolidation of the market.

Krista Das: Who are the major players?

Andrew Mickey: Well, the nickel market is almost completely controlled by the Top 4 nickel producers in the world. In fact, of the Top 4, they control more than 60 percent of the world’s nickel production. Interesting though, the strong consolidation of the nickel markets creates very good opportunities for us focused on finding superior returns in small-cap stocks. In a way, we can just ride the coattails of the major players. The major players, led by Norilsk Nickel, Xtrata and CVRD, have a stranglehold on the nickel market. And yes, we have seen nickel prices get cut in half over the past few months, but that was due to some seasonal volatility.

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However, there was a lot more of this story than I initially realized. It wasn’t until I got a chance to see a few of Norilsk’s smelters in Russia and see how much pollution they created did I understand how to profit from the cleanup of the dirtiest market.

Krista Das: Now, tell us about your trip to Russia. What did you observe, and how can one take advantage of this concentrated market?

Andrew Mickey: Well, Krista, I caught on to quite a few things while I was up there. I mean most all the pollution, and I kind of noticed why Russia wants to keep tourists away from there. Most tourists go to Moscow and St. Petersburg. I was there. It took three days at the embassy, and I needed to get special permits and all the travel to the nickel area of Russia.It’s kind of the black-eye of Russia. Pollution is bad. They have very low birthrates. It’s just a very dangerous place; high crime rates. And it’s not a good place to be. However, what I did realize there was that’s the opportunity for the truly small players to come in and take advantage. With such a high consolidation to market, the big players aren’t going to let nickel prices fall very far. And as a result, a small player that really doesn’t come up on the radar screen of the major players can just come right in and go along for the ride with the high nickel prices.

Krista Das: Now Andrew, a lot of people are skeptical about foreign investments such as this one. What criteria need to be met to successfully invest in international mining plays?

Andrew Mickey: Well, Krista, I understand that completely. Investing in international areas, especially a place like Russia, which has such a bad reputation, you need to focus on three things. That’s always: people, property and money. The first thing is with the people, and this is especially true in Russia. They need to know how to navigate the local business community. Also, as well, they have to know how to get through the entrenched bureaucracy within the Russian government. In addition to that, you need a good property that actually has, in this case, the amount of nickel that would make production in the future possible. And that’s just what we’re kind of looking at that. Finally, money is so important because if you can’t raise enough money to put your property into production so it actually becomes a mine, then you’re just sitting on a giant moose pasture.

Krista Das: Now, is there a wild card in the nickel industry? I know you probably can’t give it away on this program, but can you tell us a little bit about the company? And if so, what makes it a strong buy?

Andrew Mickey: Well, you’re right, Krista. Again, I want to come back to the small players in the nickel industry. Where the Top 4 dominate the entire industry, the small players come in, and like I said before, just kind of ride the coattails and enjoy the ride along with the nickel prices. But they don’t have enough production to actually impact nickel prices over the long-term. So the Top 4 just kind of let them go on their way and produce what they – produce as much as they want and make as much money as they like because it’s never going to impact the Top 4. So that’s the kind of wildcard we’re looking at, the real small players, and especially with the high-content nickel regions of Northern Russia where it’s kind of tough to navigate. And people still haven’t really found out the true opportunities up there.

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