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On Sunday, I’m boarding a plane for South America. My trip will include Chile and Argentina, from the eternally snow-covered peaks of the Andes to the windswept barrens of Patagonia. Part of my trip will include traveling by vehicle and foot at more than 4,500 meters above sea level (2.8 miles high!).
I have also been warned that I could face sudden, unexpected snowstorms AND intense heat and sun that could fry my skin like bacon. The waivers I’ve been required to sign cover everything — heck, I think that legally, now that I’ve signed these waivers, the mining crew is allowed to kill me and dump my body in a pit and dance around my grave, singing halleluiah.
Is it worth it? Yes. Because I’m on the trail of the treasure of the Andes.
A Potential Blockbuster
The company I’m visiting is an explorer, and it’s on to something. Just one of its projects is sitting on an inferred resource of more than 19 million ounces of gold and billions of pounds of copper. And it has more than one project — the other project is reporting bonanza gold and silver grades from its exploratory drilling program.
Now, these resources remain to be proven economically recoverable, and the mines remain to be built. And we’re talking South America — anything can happen. But if this is as big as the explorers think it is, it could be a blockbuster.
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See, gold prices may be high, but they could go to the moon and we still wouldn’t be able to speed up the development of new gold mines. Even in a best-case scenario, it would still take five to seven years to bring new projects into production.
That means the big miners will start to get more frantic as gold prices go higher. They haven’t spent enough on exploration to replace the gold they pull out of the ground; it’s easier to buy new projects to fill their dwindling pipelines. And this project I’m talking about, which is potentially one of the biggest low-grade deposits found in recent years, could be just the ticket.
Feeding China’s Booming Market
I’ll have more on this discovery as I report from the field next week, and of course, my Red-Hot Global Small-Caps subscribers will get the news first. For now, I want to give you the scoop on Chile, one of South America’s undiscovered gems — and how you can play it.
The Republic of Chile is a country that is building its wealth on natural resources — copper, timber, iron ore, molybdenum, agricultural products including wine, and gold and silver. Exports account for 40% of the country’s gross domestic product (GDP). So, naturally, Chile got clobbered by the global recession. Chilean GDP contracted 2.3% and 4.5% in the first and second quarters of this year.
But the global economy is picking back up again, with increasing demand from China and other emerging markets. Chile, situated on the Pacific Ocean, is well positioned to feed into the booming China market. Thanks to growing exports and government stimulus, Chile’s mining output jumped 7.5% in September, and copper production surged 8.5%. Copper prices have climbed to $3 a pound from $1.50 a pound at the beginning of the year. The rest of the economy is picking up as well, and Chile will probably see third-quarter GDP grow by 1.5%.
Chile’s population is well-educated and has a reputation for working hard. The country welcomes foreign investment and tries to reduce red tape for foreign investors. There are no limits for the type of business that foreigners can develop in Chile or restrictions on property companies can own.
Two Ways to Play Chile
Chile’s benchmark IPSA index performed better than regional neighbors in last year’s downturn, but has lagged in the last six months. That’s because the IPSA has a larger percentage of utilities (27%) than other indices in the region like Brazil’s Bovespa, which is composed 40% of commodity stocks like mining giant Vale SA (VALE). Still, another downturn isn’t out of the question, so if you want some commodity exposure AND a potentially higher degree of safety, the IPSA may be the ticket for you.
One way to play the Chile market is the iShares MSCI Chile Index Fund (ECH). It has a total expense ratio of 0.63%. Another is the Chile Fund (CH), a closed-end mutual fund that was recently trading at a 7% discount to its net asset value.
And both funds have outperformed the S&P 500 by a wide margin over the past year …
Past returns are no guarantee of future performance, of course. If you like this for your own portfolio, make sure you do your own due diligence. And in this market, “nimble” and “cautious” are two words to live by.
As for my subscribers, the Red-Hot Global Small Caps portfolio already has a couple of South American picks, and there will likely be more to come. If you’ve ever thought about stepping up to bat and targeting big gains in small caps, it’s a great time to join!
Yours for trading profits,
Sean
P.S. Don’t forget, this is your last chance to register for the big Jurojin event, at noon today. Registration is closing at 10 a.m. this morning and only the first 1,000 people will be able to log on and listen to the webinar live, so be prompt. However, in case you do miss it, a replay will be available. And I may post updates on my travels on my blog at http://blogs.uncommonwisdomdaily.com/red-hot-energy-and-gold/, so be sure to stay tuned.
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Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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