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Transcription of Interview with Managing Director and Founder of The Emerging Trends Report,
Kerry Stevenson: Hi I’m Kerry Stevenson, Managing Director of Symposium. I’m here
today with Richard Karn, Managing Editor and founder of The Emerging Trends Report. Richard
thanks for joining us. Richard Karn: It’s a pleasure to be here.
Kerry Stevenson: Richard there’s a lot of comment at the moment in the press about current
economic conditions. What are your thoughts on the trends and outlook for the resources
industry, in the light of these economic conditions? Richard Karn: Well I think right now there’s
a tremendous amount of discussion in the press about a “slow-down in China” and with
the idea of China as well the BRICs, actually kind of levelling off. But we need to remember,
they’ve undergone a period of tremendous growth and now their economies are getting
quite large. And a slow-down is to be expected. But China and the BRICs are not the only drivers
of resources right now. The so-called N11, the Indonesia’s, Turkey, Nigeria, Pakistan,
Vietnam, Mexico, Iran, Bangladesh – I can’t even remember them all, which ones did I miss
here? Oh, South Korea and the Philippines and Egypt. Those have very rapidly growing
economies with large populations and their resource demand has been under the radar for
some time, because everybody’s been focused on the slow-down in the US and the EU, and
the increase or the growth in the BRIC countries. But these guys are going right along with
them and they’re doing very, very well. I mean Indonesia is a huge trading partner
of Australia, as is South Korea and Vietnam of course.
So in the background, this demand is stepping up and kind of to support that Goldman Sachs
came out with a paper in the last day or two that said they expected this decade, from
2010 to 2019 to be the decade with the highest growth between 1980 and 2050. And they’re
projecting a global growth in excess of four per cent for this decade. Now with the US
and the EU as I’ve said, slowing down a bit if not declining a little bit and the
BRICs kind of plateauing at a higher, you know, and probably sustainable consumption
level, these other countries are picking up the slack. And that demand is going to stay
high by historical levels. Kerry Stevenson: And what are some of the
key decisions that you feel will impact the resources and energy industry, specifically
I guess, in the near-term? Richard Karn: Well here in Australia as you
know, we have a decided focus on specialty metals and gold first, but in particular specialty
metals and gold companies. And the biggest problem facing the small companies that are
trying to get these projects developed, are the same problems they’ve had historically.
And that’s lack of access to capital, and that lack of capital resulting in management
having to dilute their equity, in order to survive.
And so we end up with these problems where we have these small cap companies with these
massive equity dilutions. And people outside of Australia don’t understand how difficult
the accessing capital is for these companies. And they think it’s a symptom or reflective
of questionable management when in actuality, they don’t have any choice if they want
to survive. So one of the things we’re seeing right
now is Europe to a certain extent, has been picking up the slack as it were, in lending
for over the last few years, especially since the GFC started. And what’s happening is
because of the increased capital requirements for European banks; we’re starting to see
a slow-down in that lending. We expected that will exacerbate the situation, but what will
happen also will be that there will be an increase, a corresponding increase in M&A.
Now the merger acquisition area, we think is going to pick up for a number of reasons.
One, we live in a world that’s utterly a wash in liquidity. You know, we’ve got central
banks all over the planet printing like there’s no tomorrow. Corporations at some point are
going to understand, well hold on, we could do that too. It’s called company scrip.
And so they’ll be able to buy these small companies and pick up some very good assets
very cheaply. Now from a shareholders point of view, this is a double-edged sword - it’s
a double-edged sword. If you are investing in the company that’s going to be bought,
say a tungsten project or something and you invested in that, they’re going to receive
a premium and everybody’s happy, and blah, blah, blah.
But if you are an investor in a company who is doing the takeover, suddenly you have to
do some investigation to decide whether or not that is a, you know, that is the right
resource – the right project for them to be picking up. Are they paying too much, is
this going to be some kind of habit forming equity dilution that they’re going to use
to mask other things? So it becomes a question of really paying attention and getting close
to management and understanding what they’re doing, and why they’re doing it. But we
certainly see this picking up. Kerry Stevenson: Richard, in the light of
what you’ve just said. Why do you think it’s important that Australians really educate
themselves and understand what’s going on in this sector?
Richard Karn: I won’t tell you how old I am, but I’ve been investing for a long time.
And what I will tell you is that this is by far the most cutthroat, demanding investment
environment I have ever experienced. There are so many cross-currents, there are so many
operational paradoxes extant in the market right now that for the small investor, it
is very, very difficult to get a good grasp on what’s going on.
Now one of the beauties of your conference last year, was you had such a diverse number
of speakers that you gave a very good overview on many aspects of the market. It wasn’t
just a gold conference; it wasn’t just an oil conference. You had speakers covering
a whole range of materials and what came out of that for me at least - I was very pleased
with it and I spoke there. I came out from learning that - I had a much better picture
on the overall situation in Australia, as a result of the conference. And that was as
a presenter. Kerry Stevenson: Richard thanks for joining
us and sharing your views with us today. Richard Karn: It’s a pleasure.
Kerry Stevenson: Richard Karn the founder and Managing Editor of The Emerging Trends
Report, really has a lot to say about what he feels we need to look out for, in the future
for the resources and energy sector. He’ll be one of the keynote speakers at The Resources
and Energy Symposium in Broken Hill this May, along with a great variety of other keynote
speakers. And where you can really understand what’s going on in the resources and energy
sector. I look forward to seeing all of you in Broken
Hill this May. Thank you.
Ends