The world is going to need a lot of metal to make the transition to a low-carbon economy a reality – much more than Red Cloud Securities Inc. chief executive officer Bruce Tatters believes the average financial advisor understands.
With the federal government introducing a new tax credit on flow-through shares (FTS) from miners exploring for copper, nickel and other rare earth elements needed to advance clean energy technologies, he believes the junior mining space is ripe with opportunity for investors.
Mr. Tatters spoke with Globe Advisor recently about what makes the micro-cap mining space particularly attractive following the policy shift.
What’s happening to the historically cyclical nature of the metal commodities market?
Prior to this decarbonizing trend, we lived in a world in which nickel and zinc and all the other traditional base metals were going through five to 10-year supply waves. They were never scarce for very long and if they were, it would be for six to 12 months.
We simply do not produce enough of these metals right now. What they have done is turn the old, ugly little mining sector into a growth industry.
We are in a market meltdown and copper is still $4.32 a pound, up from $2 two years ago. And if [metal prices] are not coming off in a market meltdown, just wait until we get past this slowdown.
Why does that benefit junior miners more than the big global players?
The message from the government [via the flow-through shares credit] is there is a real chronic shortage here. It’s giving enormously high tax incentives now if you are exploring for a critical metal.
We all have this going on, yet the little junior exploration and development space is still trading as if it is the same bankrupt industry it was five years ago. One of the trends has been to compress and compress the valuations of the little companies. They are ignored.
And yet, in Canada’s capital markets, there is a small micro-cap space that happens to do the bulk of the exploring and developing for the types of metals that are going to become extremely scarce over the next 10 to 15 years.
Is the idea then to buy a junior mining stock and wait for the takeout premium?
Twenty-five years ago, the Barrick Golds GOLD-N -0.15%decrease of the world would thump their chests and go out and buy everything at the top of the market, but it is a bifurcated market today.
The larger players don’t have a lot of new, incremental projects and they’re waiting for the little juniors to literally bring a project to the finish line. Then, they will pay up for it. They would rather overpay than pay earlier. Outside of my little quadrant, where it is so obvious this is coming, the Main Street people out there don’t have any clue.
This interview has been edited and condensed.
– Jameson Berkow, Globe Advisor reporter
