Donald Coxe Speech for the 2009 Prospectors and Developers Association of Canada (PDAC) Convention

With 35 years of institutional investing and money management experience in the United States and Canada, Donald Coxe has a unique background in North American and global capital markets.

Due to illness, Mr. Coxe could not give this keynote address at the PDAC convention. PDAC and Mr. Coxe have graciously allowed Republic of to post the speech.

Don Coxe,
Chairman, Coxe Advisors LLC.

Hello Toronto—I truly wish I were with you. This is a desire that goes back a long way.

Nearly 6 decades ago, when I started reading The Northern Miner, I concluded that the Prospectors and Developers Association convention must be the neatest convention in the world, and the biggest thrill would be to be giving the keynote address to that convention. I could never aspire, then, to that happening. I had to live a long time, and then I proceeded to get sick.

In that sense, it’s an abbreviation of what has happened to us all, which is that, as of a year ago, it seemed that we’d got what we wanted. It was all coming true—and all of a sudden, a financial collapse hit Wall Street. As you know, for the last 6 years, I’ve been telling people that “We are living through the greatest simultaneous efflorescence of personal economic liberty in human history.”

By that, I mean people who for the first time, (after having led lives of privation and poverty) are moving into dwellings with indoor plumbing, electricity, basic appliances, and acquiring access to private motorized transportation. The people who have those things have more personal economic freedom than 99% of the people whom have ever lived.

What’s happened in this decade is simply that a whole section of the world began to catch up to where we in the industrial world had long been, thereby transforming the outlook for the mining industry.

The mining industry was structured to meet the needs of the Industrialized World, (plus Russia) and when the Cold War came to an end, it meant there was massive over-capacity, because the only major source of noncyclical demand for metals came out of military preparation.

So, when the Berlin Wall fell, and then Russia imploded, that basically inflicted a body blow to the base metals industry across the world. Not only did this mean that those great Gulag mines of the Soviet Union would now have to find new customers, but in addition, that 35% of Soviet GDP, the military, wasn’t going to be buying, so therefore that whole great sector of demand was going to disappear.

So for the base metals industry, you can sum up its years of agony as beginning in 11/9, and ending in 9/11:

November ’89 (11/9) was when the Wall fell, and that was unmitigated bad news for the mining industry.

But then came 9/11. I was asked to speak on the CBC radio when the Toronto Stock Exchange reopened, (ahead of New York) and they asked me to recommend to people, Canadian investors, what they should do.

I didn’t want to talk about it, I’d lost too many friends in 9/11 and it was too much of a shock, and they said, “Well, Canadians follow your work, and they’ve got to know what to do.”

So I said, “All right, I will.”

And I was asked, “Is there any group in the market that can be said to have benefited from this horror?”

I said, “Yes, the base metals industry”, because it had already adjusted to a situation of really low levels of demand and consolidation, after companies had been competing with each other to build bigger and bigger mines—and now we had a new war, which was going to lead to more demand for military hardware. That, plus the fact that the industry was concerned about profits rather than scale of operations, meant that there were going to be great years ahead for the base metals industry.

I was denounced as giving a typical capitalist’s reaction to a disaster: Hurry, hurry, people murdered in war, get rich quick.

That wasn’t the purpose of the message. It was, simply, that an industry which had suffered for a long time, was about to see better times.

So when I spoke at the Bank of Montreal / Nesbitt Burns Resources Conference in February 2002, I said this would be the greatest commodity boom of all time, and I’ve been saying each year—year in, year out.

And although we’ve had a tremendous setback, it will still prove to be, from the sweep of history, the greatest commodity boom of all time.

But we’ve had a big—terrifying—interruption.

That interruption came because the financial industry in the United States, Britain, Spain, and Eastern Europe and Ireland in particular, failed to take notice of something obsolutely obvious.

This wasn’t a hidden thing.

What was obvious was that since 1971, the industrial world had stopped reproducing itself.

We had gone from the big families of the baby boom to negative population growth, and we didn’t stop en route.

We went from having 2.4 babies per woman (that’s called the fertility rate) down 1.4, and although it took years to show up in the housing statistics, that means that each new generation (in the Industrial World) is roughly 60% the size of its predecessor—that’s in the Industrial World.

So in this decade, when the Industrial World launched a new housing construction boom, it soon found out that there weren’t the same eager numbers of first-time home buyers ready to spend their savings on a home as had appeared in each earlier cycle.

Then Wall Street and the investment banks across much of the world went out launched a financial construction boom, on top of that housing boom—creating complex mortgage packages.

They were able to lump in the truly poor, the unemployed, the uneducated, the jailed, the illegal immigrants and the flippers to make up for the lack of real demographic demand—pumping them out, and this was supposedly going to be good for people.

The Unborn in the 1970s and 1980s were unable to enter the housing market—so Wall Street just went out and invented them.

They even created what were called the NINJA mortgages: No income, no job, no assets. They managed to get AAA ratings for them.

The result is that we had a totally unnecessary financial crisis.

This is the sordid saga of how the financial industry tried to cover-up demographic collapse and created a crisis for us all.

We have a severe global recession.

To date, the sector of the mining industry that’s been hurt the most is the base metals.

But this has been good for the gold-mining industry because as various other kinds of assets fall in value, gold reacquires its historic luster, based on the reality that you can count on societies and civilizations and governments and individuals and companies to screw up, but when they all do it together and you’ve got a crisis—the one thing they can’t destroy the value of is gold. This has also helped silver and platinum.

Gold, which is the non-man-made money, (even though men have to do marvelous things to get gold out of the ground these days) has been the big winner from the unexampled folly of some of the richest and bestknown people in society, the financial community and people in government. Gold has outperformed commodities, stocks and bonds.

So that’s how we got here.

Gold is above $900 an ounce, but this unnecessary crisis and recession have knocked base metal prices way down: Wall Street’s worst players took copper from $4 down to $1.50, and it’s been even worse for aluminum, nickel and zinc.

However, what we do know is that those millions of marching feet in Asia are still marching forward.

China and India have slowed down their growth because there has been a big cutback in their exports to the Industrial World—but they are still moving forward.

When Chris Patten (who had been the final governor of Hong Kong) was installed as Chancellor of Oxford, he said, “For the first 18 centuries, of what we call the Christian or Common Era, the two biggest economies on earth were China and India.”

“They didn’t experience the Industrial Revolution.”

“In the first half of this century, we will revert to normalcy”, he said—and that’s what’s happening!

These people are prepared to work hard, to save, to have children, and to build a better world for them.

This is a gigantic tide of history, that even the sleeze of Wall Street can’t stop.

What it means is unalloyed good news for the entire mining industry—it’s only a question of when.

While I was thinking of a title for this talk, I thought of a quotation from America’s most quoted aphorist Yogi Berra, “When you come to a fork in the road, take it.”

How does this apply to the opportunities in the mining industry? Well, if you are a near-term investor, or short-term trader, the obvious choice is in the precious metals. If you follow the yellow-brick road, you’re going to be enjoying prosperity—right now and for the foreseeable future.

If you are an investor with a long-term vision, don’t forget about the road less traveled—err long, you’ll want to be there.

All major governments and all major central banks are reflating their economies, so base metal demand will come roaring back. In fact, the financial crisis has put off so many projects, that when the global economy comes out of this mess (as it will) what we know is that prices for the metals will be much higher than they would have been otherwise.

And in the meantime, you’ll want to use this detour, to make sure you’ve got the right provisioning and to actually build up your resources.

You are going to come back to the big base metals operations—iron ore, copper, nickel, lead, zinc and aluminum. That’s what I mean by, “If you come to the fork in the road, take it.”

It’s going to take a long time to dig out of the mess that Wall Street created and the skills required, unfortunately, aren’t the kind found in this room, or this industry.

But that sordid series of decisions based on greed and bad science is already heading into history.

Every person in this room has suffered from them, but their power to hurt us is being drained away by the forces of the market.

This should be an occasion for widespread rejoicing for the mining industry—as it has been for so many years.

Right now, it’s the precious metal people who are having a ball. But it’s their base metal brethren who are going to be ebullient within a few years.

It’s gonna happen.

What you’ve got to think about is, in fact, that your industry is even more important to the future of the world now than it was a year ago.

Your industry is based on exploration, and what we know is that the capital required for that is not going to be so readily available, and that means it’s more important than ever to allocate it effectively because the world needs to bring on new resources in the coming decade.

The people who fill this room are going to be crucial to the prosperity of the world.

That doesn’t mean they are going to be sharing heavily in the prosperity of the world right now, but it does mean that attractive mineral prospects are probably much more readily available now than they have been for 5 or 6 years, and that means the opportunities are there for those who believe.

Believing that you could put together bad stuff with good stuff, mix it up, and make it great stuff, is the debauched, debased, phony belief system that brought down Wall Street.

Believing that you could create real wealth with capital, technology, hard work, a willingness to take risk—is the belief system that is the foundation of true economic progress.

Not all the financial news is bad.

For example, in the United States, 90% of mortgagors are meeting their payments, and more than 90% of the eligible workforce have jobs.

Don’t believe Barack Obama, that this is a new Depression. Besides, he doesn’t believe it himself anymore, now that he has got three trillion dollars in spending approved.

It’s easy at a time like this, to focus on the bad side of things, but in fact this gives you a chance to regroup and reload.

So take advantage of the opportunities that are out there.

Take advantage of the opportunities to meet the people who have been building this industry and are going to be crucial to the future of this industry.

Take advantage of the opportunity to look at what can now be achieved because the prices of mineral prospects are back in buying range.

Who says so?

Notice that the very biggest metals consumers have already begun to place their bet on the future—the Chinese are starting to buy metal assets and they are paying very good prices for them.

Of course these are gigantic and well established, producing metal assets, but that tells you that the Chinese believe that the future that we’ve been talking about for all this time, is in fact going to happen.

They are smart enough to say that: We are going to take advantage of this setback, to buy the stuff that we actually price by our own consumption. If the Chinese weren’t buying during a time as bad as this, then you’d have to say that the basic thesis I’ve been telling you for the last 6 years, was false—but the Chinese are buying, so are the Indians.

What you know is that the future is out there—we just don’t know how many months, or years it will take. When it does come, it’s going to be just as beautiful as any speaker at these conferences in the last 6 years has been telling you.

I am not saying it’s a time for rejoicing—I am saying it’s a time to roll up your sleeves, get to work, and get ready for the next big mining boom.

Thank you.

Don Coxe

190 S. LaSalle Street,
4th Floor
Chicago, Illinois
USA 60603