This article was first published in the 2016 edition of WA Mining Club‘s Minesite, an annual collection of the club’s activities as well as those of its members. Ron is an active participant of WA Mining Club and never misses an opportunity to pen a few words.
Learning past lessons is a vital skill best mastered early, and nowhere is that more true than in the investment world. The economic clock is a useful tool for suggesting where we might be in the resources cycle, and one worth revisiting in earnest today, as recognised educator and regular Minesite contributor outlines here. Ron Manners also encourages us to consider the tone in which we learn these lessons, and expands on his reasons for encouraging modesty and contemplation to maximise our collective, and individual, learning.
I have been collecting Lion investment clocks since 1994. So what’s good about this clock? Continually updated by Robin and Hedley Widdup, the clock gives us an indication as to the likelihood and timing of the next resources boom. As featured in the Lion Selection Group’s Lion Analyst August 2016, the Lion Clock hand has struck seven, and the liquidity tap is on. It states:
“In early 2016, sentiment swung back to miners, led strongly by gold miners. Along with equity price increases, there has been a commensurate opening of the fund raising market both for listed companies and more recently for companies hoping to list. The opening of the IPO market for miners is a crucial indicator of investor sentiment – therefore it is now 7 o’clock.”
While the cycle and time marches on, however, I suggest we take a deep breath and pause to ask ourselves a few questions. Did we learn anything from the boom just passed, and several others, that were a gift given to so many of us? Did we keep enough ‘powder dry’ to survive and prosper through the inevitable downturn?
As we make our plans to conquer the next boom, I would like to think there are some basic lessons and values we can learn from our history.
One critical point is that progression should be controlled and measured. I gave a presentation titled Humility at the Australian Mineral Foundation Conference dinner in 1995. The following is an excerpt:
I can remember the years leading up to 1965, nothing was happening – so we all had plenty of humility. Then Western Mining Corporation discovered Kambalda and gave everyone the feeling that a methodical, technically directed exploration effort logically leads to a discovery. The key individual behind that great discovery, Mr Roy Woodall, is with us tonight and I am proud to be seated at the same table.
About four years later an unheard of company called Poseidon, with almost no funds and limited expertise, appeared to make a similarly significant discovery and that’s when we all lost our humility.
If they could do it, so could anyone – and for the next few years we saw so much money wasted. It is only in retrospect, that we can look back to that ‘nickel boom’, nearly 30 years ago, and reflect that all that activity only produced two companies who made a profit from mining nickel – Western Mining Corporation and Metals Exploration NL. Not a good track record when we consider that based in Kalgoorlie alone, there were 350 Australian and international companies involved in nickel exploration. Kalgoorlie had the highest concentration of geologists in the world at that time. Interestingly enough, the second highest population of geologists was in New York City!
It is easy now to be critical of the waste and lost opportunities of the nickel boom. However, in all fairness, it should be remembered that this boom was a totally unscheduled event for which no one had received any training. Gold had been our only exploration target, and even the visiting Canadian nickel experts brought with them some misconceived geological models.
The dozens of junior companies floated, to take advantage of the opportunities of the day, were often run by first-time directors recruited from golfing or fishing mates or the local doctor or dentist. There were just no technical people to fill the positions. All that frantic effort of the nickel boom did not generate one geological conference of the stature of this conference tonight. I don’t think we had any comprehension of our degree of ignorance and the requirement for such knowledge at that time.
Obviously we have come a long way since 1965. Still, in post-boom 2016, I hope we allow ourselves enough time for learning and reflection, and move forward with humility while preparing for the next phase in Western Australia’s resources cycle.