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Ardent Listener
30th August 2007, 17:18
Virtues of Precious and Base Metals, Fund Manager Extols

San Francisco Fund Manager Extols Virtues of Precious and Base Metals
By Al Korelin
Aug 29 2007 4:30PM


Marshall G. Berol, co - Portfolio Manager of the Encompass Fund (www.encompassfund.com), has invested about 35% of the Fund’s assets in precious and base metal companies over the past fourteen months. So far it has been a win for investors.
Berol has been following resource companies for the past twenty-five years, and believes that in today’s environment these companies provide not only effective insurance, but great upside potential for the Fund’s investors.
I recently spent a couple of days with him in Saskatoon and Uranium City, Canada, looking at mining properties. The airplane and helicopter flights we took together gave me the opportunity to pick his brain.
We discussed how last week on The Korelin Economics Report the guests were split 50-50 between optimism and pessimism about commodity prices, and commodity equities.
Regarding base metals, Lawrence Raulston and others feels that an unprecedented buying opportunity exists today. On the opposite side, Paul van Eden, Bob Moriarity and others expressed the opinion that copper, nickel and other commodities were something to avoid right now.
Berol is in the camp with our guests who are optimistic about prices. Berol and his co-Portfolio Manager, Malcolm H. Gissen, believe that the supply-demand picture favors the continued rise in the price of the base and industrial metals (copper, zinc, nickel, molybdenum and uranium) for some time to come. While recognizing that there will be price volatility, the demand for these metals continues to grow with the growth of the economies of China, India, the rest of Asia, and South America. Particularly in China and India, the need for the continued building of the infrastructure requires various of these metals, such as copper for wiring, nickel and zinc for steel manufacturing, molybdenum for pipelines, and uranium for the fuel for the 440 nuclear plants currently operating, and the approximately 100 new nuclear plants now under construction or planned, around the world. The growing consumer class in these countries also want housing, refrigerators, automobiles, cell phones, etc.
The demand continues to grow, and it is increasingly difficult, time-consuming and expensive to bring new mines into production, or even increase the output of existing mines. This is due to increased environmental requirements, the need to accommodate the local people, and the fact that the “easy” material has been found. New discoveries and mines are in increasingly difficult geographic locations or less stable geopolitical areas.
I completely agree with Berol. I went on record some time back stating on the air that I was a long-term bull in both the base and precious metals sectors. Everything I learned as both an undergraduate and graduate student indicates that for a while it simply makes sense.
Berol also believes that it makes as much sense in the gold and silver areas, to which I agree. While some of the underlying factors involving gold are different, there is still a supply-demand imbalance that is not likely to correct for years. Gold isn’t so dependent on the infrastructure build-out as the base and industrial metals, but it does have the additional historic demand factors of “storehouse of value” in difficult times, and demand from an expanding middle class for jewelry and gift giving. Silver has increasing industrial uses, as well as consumer demand. Recall that only a few years ago, the silver bears were saying silver “was dead” because of it’s decreasing usage in photography. The fact is that silver has gone from $3.00 - $4.00 per ounce to over $11.00 (with a high around $15.00) in that time frame.
The investment climate today is anything but stable and the gyrations in the conventional markets, as measured by the Dow, the Nasdaq Composite and the S&P are truly frightening. You cannot open a newspaper today without reading about serious liquidity concerns around the world. It’s enough to scare anybody.
I truly believe that fear is the incorrect emotion here. Rather than be fearful investors need to be optimistic. Why? Simply put, we have an unprecedented opportunity for profits from investing in precious and base metals and the related public companies. Listen to The Korelin Economics Report (www.kereport.com) and hear discussion with experts in this field and see if you don’t agree.