So bad it's good: surviving 2014

As we approach Thanksgiving in the States, Streetwise Reports reached out to some of our most popular experts for perspective on the natural resource market during this volatile time. While some thought 2014 was so bad it was good—for contrarian investors—others will be all too happy to see the year in the rearview mirror.

Streewise Reports: What is the 2014 development for which you are most grateful?

Marin Katusa: I am grateful for the current correction in the resources area. It is what we've been waiting for. We have been saying to stay in cash for a while, be very patient, we're going to have a correction. If you are a true contrarian investor, you have to buy when there is blood on the streets. I can assure you that in Vancouver, the junior resource hub of the world, there is blood on the streets. It's going to probably take longer than most people want for the market to turn around. That's irrelevant to me; I don't take a quarterly or a monthly perspective. I look at the longer-term perspective. I'm thankful for the correction because it's providing me opportunities to get into some of the best companies at prices that two years ago would seem unimaginable.

Frank Holmes: I am thankful for the royalty model and the MLP model, because with these you have higher margins along with dividend income. In particular, I was happiest with names such as Virginia Mines Inc. (VGQ:TSX) most recently, along with Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) and Silver Wheaton Corp. (SLW:TSX; SLW:NYSE).

John Kaiser: The collapse of valuations in the resource sector has widespread negative repercussions, but a positive outcome. What I am thankful for is that we are no longer in an environment where everything is overvalued because of positive momentum in both the market and the key commodity cycle and in gold bug narratives. Instead, now it is possible to find good value adjusted for fundamental and external risks. 2014 killed the last greater fool. Going forward, investors in the resource sector will only look smart for the right reasons.

David Morgan: As I say at the end of The Morgan Report every month, "health above wealth, and wisdom above knowledge." As always, I am grateful to be alive and surrounded by wonderful people.

Rick Rule: I am thankful for the young individuals I work with at Sprott who are really developing and making an impact at the company. Those are the people who will take the sector to the next level.

Chris Berry: I definitely think we've bottomed in the metals. This doesn't mean that certain metals like iron ore can't fall further, but generally, metals prices such as copper or lithium seem to have stabilized. The real questions now are how long do we stay at these depressed levels and what will be the catalyst for the next leg up in the cycle? It may be 2016–2017 before we know the answers.

Brent Cook: I am thankful that my daughters are doing well and off the dole, and for some great beach volleyball in Mexico as I celebrated my 60th birthday.

Investment wise, I am also thankful that two of the companies in the Exploration Insightsportfolio—Papillon Resources Inc. (PIR:ASX; PAPQF:GREYS) and Virginia Mines Inc. were bought out at premiums. Both had high quality, legitimate economic deposits that can make money at any foreseeable gold price. Companies like those are few and far between.

I am also grateful that my thesis of declining economic discoveries leading to increasing demand for these very few developable deposits is playing out. It will take time, however. What I don't think we have seen yet is capitulation. When Rick Rule capitulates, then we have complete capitulation and the market can start to turn.

Kal Kotecha: I am grateful that gold is only down marginally by my calculation. It is actually the U.S. dollar that is rising and making gold look weak.

Chen Lin: I am grateful that I saw the correction of commodities coming during the summer and was able to raise a lot of cash in early September. Otherwise my portfolio would have suffered huge damage.

SWR: What was the biggest turkey of 2014, what are you glad is behind us as we move into 2015?

Rick Rule: I was the biggest turkey. I was really expecting a surge in the retail resource marketplace. I was expecting capitulation. I have been hanging in there and was really surprised at the degree of volatility. Instead of capitulation, we took another leg down. That makes me a turkey. Now we have to see if I will be right in 2015.

John Kaiser: The biggest turkey was the updated feasibility study Goldcorp Inc. (G:TSX; GG:NYSE) published in late March for its Eleonore gold mine in Quebec. Eleonore was the greatest Canadian gold exploration discovery made by a resource junior (Virginia Gold Mines) during the past decade. When Goldcorp bought Virginia in March 2006, gold was at about $550 per ounce ($550/oz), less than half where it is today. After the pre-resource estimate in 2006 for $750 million ($750M), the company outlined 3.8M Proven and Probable ounces and another 4M Inferred ounces at a somewhat higher grade, nearly doubling the projected 9 year mine-life. The 7,500 ton per day underground mine will average 400,000 oz annually, but the feasibility study indicates that at a 5% discount rate using $$1,300/oz gold, the after-tax net present value is negative $172M and the internal rate of return is 3.15%, thanks largely to a capital cost of $1.85 billion.

Eleonore is a symbolic turkey for the exploration sector because it has raised the bar for what counts as an exploration success at $1,200/oz gold to an impossibly high level. If a junior discovers a new deposit in a remote location that looks like Eleonore tomorrow, the market would have to dismiss it as economically insignificant. Eleonore has already been built, so it would benefit from higher gold price and the doubling of mine life when the resource is upgraded to a reserve, but it would not be built today.

Frank Holmes: In 2014 the "turkey country" was Colombia, with Ecuador appearing to be the new dove. The biggest turkey has been Gran Colombia Gold Corp. (GCM:TSX), for a number of reasons. In Colombia, poor government policies hurt mining companies. This risk of socialism, paired and with the price of gold and weak management that was unable to focus on mine development, really hurt the company.

Chris Berry: The biggest turkey was tin. Based on ore export bans in countries like Indonesia and threats to do the same in the Philippines, I expected the tin price to end the year substantially higher. This did not happen, even though we did see higher prices for similar metals like nickel and aluminum.

Brent Cook: The biggest turkey is that a sizable portion of humanity has not mentally advanced much past the Stone Age, with the exception of methods of killing each other. The long list of atrocities committed in the Ukraine, Palestine, Israel, Sudan, Congo, etc. by the likes of ISIS, Boko Haram and others, document that there is nothing kind about mankind.

David Morgan: Colossus Minerals Inc. (CSI:TSX; COLUF:OTCQX) was a big disappointment. I still think it had one of the best assets in the world, but it was a complete disaster. There were structural issues in the underground mine and management, for whatever reason, wasn't forthright about what was happening. That is a reminder to only invest money you can afford to lose.

Kal Kotecha: The biggest turkey of 2014 was coal. In addition to government pressure, the impact of Australia flooding the market with cheap supply and China's demand slowing down has taken a toll. However, with a new Republican majority in place in Washington D.C., prospects may improve for coal in 2015.

Chen Lin: Mart Resources Inc. (MMT:TSX.V) is my biggest turkey of 2014. It was supposed to start its new pipeline in the first half, then the beginning of second half of the year. Now we are in November and it is still waiting for the final paper work. Shares dropped to below CA$1, unthinkable a year ago. Fortunately, the dividends I received already covered my original costs. But it still hurt a lot. I hope they will get the final signature soon and let the oil flow.