They Turned $4,000 into $750,000
in Four Years
By Dr. Steve Sjuggerud
December 13, 2006
Greetings from Vancouver, Canada – a fantastic place to be... in August.
Unfortunately, it’s December right now, where the days are short and the forecast for this entire week is “cold and rainy.” But I’m not here for the weather. I’m here spending a week sizing up the best and brightest in the mining capital of North America at least, and arguably, the world.
I’ve met some incredibly smart, bold folks who’ve brought home comically large returns to shareholders in the last few years. Take Keith Hall, for example.
If you could scribble up a list of the most dangerous countries in the world to do business, chances are Keith has lived and worked in all of them. Iran, Sudan, Russia, DR Congo, the list goes on.
Keith was fairly nonchalant about it. “It’s where the opportunities are,” he says. “The majors aren’t willing, but we are.”
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The “we” he’s talking about is Lundin Petroleum, part of the Lundin (pronounced “Lun-deen”) group of companies. The last few years have been good to the Lundin Group. Keith is chairman of one company and involved in others. He showed me the performances of a few of Lundin’s companies:
Company |
Stock market value
in 2002 |
Stock market value
in 2006 |
Valkyries Petroleum |
C$4 million |
C$750 million |
Tanganyika Oil |
C$13.5 million |
C$700 million |
Lundin Petroleum |
C$101 million |
C$3.8 billion |
Vostok Nafta |
C$119 million |
C$3.9 billion |
|
The numbers are mesmerizing. In the first one, a $4,000 investment would have turned into $750,000. In the second one, a $13,500 investment would have turned into $700,000. And in the last two, a $10,000 investment would have turned into roughly $380,000.
But remember... these businesses are in dangerous places. Valkyries is oil in Russia. The headlines in today’s Globe and Mail newspaper here are about the Russians trying to take away Shell’s majority interest in a Russian oil operation. “Shell’s deal was too good,” Keith said (nonchalantly, as always). “The Russians will probably go after Exxon, too,” for the same reason, Keith explained. (Valkyries is now part of Lundin Petroleum.)
The second Lundin company on the list above, Tanganyika, is looking for oil in Syria, of all places. “The Syrian people are nice... you’d be surprised how many speak English,” I learned in the meeting. They shared an interesting quote from Syria: “Tell your friends in America that we love Americans. We just don’t like your president.”
To me, the Lundin group epitomizes the best of Vancouver. These guys are incredibly smart risk takers. They’ve made investors fortunes in many different plays. As you might expect, Keith was bullish on commodities in general, and oil in particular.
Lundin was my first meeting in Vancouver, on Monday morning. As I’ve continued through more meetings, I’ve come to a conclusion...
The first “leg” of the commodities bull market is definitely over... Why? Because there’s too much optimism out here...
Around 2000, at the top of the tech-stock mania, the Vancouver Stock Exchange was actually closed forever. The price of gold (and other commodities) had been in decline for two decades. The closing of the Vancouver Exchange to me was symbolic of the bottom in the commodities markets... when everyone on the planet had given up on striking it rich with a junior gold stock.
Now, that optimism is back. The Vancouver hotshots are back with new life. Prospectors are back out, looking for gold and commodities. Shares now trade on the Toronto Venture Exchange instead of here in Vancouver.
Personally, I do believe that this bull market in commodities has plenty of room to run. From my meetings in Perth, Australia, earlier this year and in Vancouver now, it seems that both very large investors (banks and institutions) and very small investors (individuals) have not been sucked in yet.
They will be sucked in eventually. And prices of shares in this sector could still rise by hundreds of percent. Then, as always, just when everyone is on board, the bottom will fall out. Commodities are a cyclical business.
When the prices of commodities are low, nobody is looking for them. Nobody is building processing facilities for them. Eventually, we reach a point where there is not enough supply of the commodity to meet the demand. Prices start to soar, people get out there looking for the commodities, and processing facilities are built. Then we have too much supply... prices fall... and we start over.
It is my opinion that we still have a few years of upside here, before we risk the bottom falling out.
By buying now, you are not buying at the bottom. But I still urge you to buy, as there are still significant gains – triple-digit percentage returns, if you play it right – still on the table in commodity plays. You’ve just got to invest with the right guys... guys like Keith Hall and the others I’ve met on my trip here to the capital of mining.
