TALK TO AN EXPERT: Ray Goldie Makes the Case for Uranium
of potash and lose $50 million. So if the world
Raymond Goldie
Senior Analyst and Vice President
with Salman Partners
Our next guest wrote the definitive
account of the birth of the Voisey’s Bay
mine. A best seller called Inco Comes
to Labrador. He was also a part of the
team of prospectors that spearheaded
exploration for copper and nickel in Lab-
rador in the 1970s. Today, Ray Goldie is
a senior analyst and Vice President with
Salman Partners and regularly speaks to
the investors and the media on subjects
ranging from uranium investing to the
Goldie Principle.
R
esource Intelligence: Is there anything about
the current state of the market that troubles
you?
Raymond Goldie: The main thing that doesn’t
trouble me as much as puzzles me, is the rule of
thumb in pricing “Dr. Copper”. Dr. Copper is
good at forecasting the future and it used to be
that if you knew what the price of copper was,
then you had a good idea about what the world’s
inventories of copper were, what the demand
was and what the supply was. That doesn’t work
anymore in copper and that’s got me puzzled.
RI: Doctor copper had a nice rebound last year—
134%. Are we going to have a further rebound?
RG: If you had asked me that question back in
January 2009, I would have said that we were
going to have a rebound. That was probably the
general consensus expectation, but there was a
lot of argument in those days whether it was go-
ing to be a V-shaped or U-shaped or L-shaped
or square root shape, or even no recovery at all.
Our view was that it was going to be U-shaped,
74
wants 100 tonnes of potash I’m going to give it
99.9 tonnes of potash. That way we can main-
tain prices that are both reasonable from a pro-
ducer’s point of view, to give a reasonable rate of
return and be stable.
We have seen one of the most notable adherents
in recent years of the “Potash Corp. School of
Supply Side |Management”, in Mr. Vladimir Pu-
tin. With instructions from the Russian govern-
ment, we have seen in the last year the Russians
production of potash has been greatly limited,
because they want to match supply with de-
mand. Russia’s nickel giant, Norilsk, shut down
almost all of its offshore nickel production and
instead of expanding production last year the
way they had planned, they kept it flat. As a
result, we’ve seen on the supply side in com-
modities like potash and nickel, support from
the supply side, because the supply side is being
but instead of having the 4% growth in the west- managed by the producers.
ern world and 8% growth in the BRIC coun-
tries, there was going to be half of that. 2% In RI: Uranium has been quite a story. A lot of in-
the western world and 4% in the brick countries vestors may have been burned, having bought at
and maybe there would even be a hint of a W over $100. It’s dropped down now. What is your
there. So a U with a hint of a W was our answer position now on uranium?
and in fact if you look at what’s happened to the
world’s demand for base metals, to the world’s RG: Uranium is one of the commodities that ap-
industrial production in that year, it’s been pretty pears to be easier to forecast, because the key
much that. What that means is, with demand elements in forecasting a price of a commod-
less important in this cycle or less strong in this ity are supply, demand and inventories. On the
cycle than it was supply side, half a
in the previous dozen mines provide
one. To differen- more than 80% of
tiate good com- “I think we could see a re- the world’s uranium
and a dozen compan-
modities from peat of 2007, with prices ies provide more than
so-so commod-
ities, the supply running up well above 95% of the worlds
side has become uranium. The supply
a lot more im-
$100 for a year or so...” side is actually fairly
portant. ~ Raymond Goldie easy to forecast.
RI: Do you be- The demand side is
lieve there are only 440 consumers
going to be some significant shortages in the ma- of uranium, the nuclear reactors of the world.
jor commodities in the coming year? In the recent financial crisis, we’ve seen no de-
struction in demand for uranium. I think it’s the
RG: I certainly believe there are going to be short- only commodity that has had no destruction in
ages of major commodities and some of those demand.
shortages, rather than shortages, would actually
be market in balance and they’d be in balance Supply and demand are both pretty easy to fore-
cast; the real issue though is that third missing
because of discipline on the part of suppliers.
part of the puzzle—what are the inventories?
Back in 1987, the marketing fellow for what be- We don’t know that very well, but it looks as if
came the Potash Corporation of Saskatchewan, we could be running out of the stuff before the
said “This is a debt ridden, money losing cor- end of next year. I think we could see a repeat of
poration and I want to turn it into a lean, mean, 2007, with prices running up well above $100
profitable private company, and to do that you for a year or so around the end of next year,
have to recognize in the commodities business but beyond that looking out to 2016/17 we are
that market share doesn’t matter. What matters going to have a long term surplus of uranium,
is price. I would rather sell one tonne of potash because there are a lot of projects that are com-
and make $1,000 than sell five million tonnes ing on stream. Most of them are not coming on
See page 96 for Disclosure, Disclaimers & Info on Mineral Resource and Reserves
 ...the Case for Uranium
stream as fast as management expects,
but they will eventually return us back
to the $40 to $45 per pound price that
we have today.

RI: Is uranium purely a large player

market?

RG: I think it is definitely a small play-

ers market, because the small players
seem to be the good explorers. Look
at Sudbury for example. We have
Vale, Inco and Xstrata that have been
exploring there for over 100 years,
a small company FNX comes in and
they have found deposits that no one
else has and they make money finding
and mining those deposits. You can
do that in other commodities as well.
A small company with excellent ex-
ploration people can find, develop and
bring on stream uranium mines.

RI: The juniors in the uranium sector

have really been slammed. Do you
think this is a good time to start buy-
ing?

RG: I do and one of the examples of
that would be a company like Palladin where it
was a junior company, but it had the expertise
that their large competitors lack. If companies’
shares have been slammed, that actually cre-
ates an opportunity for someone like Cameco.
Cameco is very much a value-oriented investor.
They won’t buy an asset because it is the flavor of
they day. They will buy it because it adds to their
shareholder value and they would buy it because
they think there is something really behind that
company. If you have a company like Palladin,
whose shares have been slammed, that could
well be an opportunity for Cameco to come in
and buy out the company.
RI: Financing has been a significant issue, cer-
tainly for juniors as well as larger miners. Do
you see that as an ongoing problem in 2010 and
possibly for the balance of the decade?
RG: I do think it’s a significant problem. One
of the reasons that copper prices are close to a
record all time high is that there is a perceived
shortage. If you look around at the world’s cop-
per mines, there is not really a shortage of copper
deposits. There are lots of copper deposits. The
question is, are they all going to get financed?
It’s probably the ones that the Chinese choose
to finance that will come on stream before the
ones that have to go to western banks to obtain
financing. Banks in 2008 started to say maybe
the long term price of copper is going to be over
$2 and we’ll earn money on that basis. They got
very nervous about the long-term price of cop-
per and scaled it back to maybe $1 at the end of
2008. They are starting to get more enthusiastic
again, but probably not as much as Chinese fi-
nancial institutions are and maybe the Chinese
can lend money on a copper project where west-
ern banks can’t.
RI: What do you see as a floor price going for-
ward in copper?
RG: A floor price would be the price where, if the
price of copper were to fall to that level enough
to make people start shutting down. That price
is about $1.65 a lb. Almost every mine in the
world can make money above $1.65. So as long
as the price stays above that everyone mining
copper is making lots of money, but below that
level we could see some shutdowns.
RI: On the demand side do you think we are go-
ing to be looking at $4?
RG: On the demand side I do think we are going
to be looking at $4.
RI: Do you anticipate very many mergers, acqui-
sitions and so on in 2010 and going further pri-
marily because of financing?
RG: Primarily because of financing yes, because if
you are a small company and need your project
financed, sometimes the only way to do that is
to merge with a big company with deep pockets
but also because those big companies want to
keep on growing and we’re not finding the kind
of deposits by going out there and hammering
rocks the way I used to as a field geologist. Often
the only way to find a new ore body is to go out
and find it in the stock market among resource
stocks. Also, another reason for mergers is that
in the Canadian market in particular, the biggest
measure of risk in the past has not been what we
hear from financial theorists, that the true meas-
ure of risk is standard deviation of returns or
some other very obscure quantitative technique.
The real measure of risk in Canada has been li-
quidity. A company that is very liquid trades at
a premium.
RI: Do you go to the PDAC?
RG: I have been going to the PDAC every year
since the early 1970s.
RI: What are some questions that you think an
investor should ask an exhibitor?
RG: Why should I invest in your company rather
than that fellow across the hall? Secondly, if your
company proposes to produce a commodity that
is an unfamiliar one, for example lithium or rare
earths rather than copper or gold, ask if there
is any interest by potential consumers of that
commodity. Ask about the track records of the
exploration people who are involved in finding
ore deposits.
RI: What opportunities do you think an investor
should be looking at during this year’s PDAC?
RG: I think uranium is a sector that has cooled off
a lot and is going to become hot again. I would
rather buy uranium as a cold play right now, be-
cause I think it’s about to become a hot play in
the next year. Similarly zinc, it’s warmed up a
bit, but as we recognize that we are running out
of zinc mines, it’s going to get hotter too.

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