Musings on Investing

Why I Prefer Investing in the Developed World

Japan: Irving Resources (IRV.CSE)

Recently, I talked with Cory Fleck about why I consider the so-called emerging markets to be very risky. The only exception I make is China.

The problem with these poor countries is that when my investment makes money, governments and locals of these poor countries expropriate it. When my investment loses money, I lose anyway. Head I lose, tail they win. This also perpetuate massive moral problems.

I have spent more than half of my life traveling and living in the poor parts of the world. In my view the world has two distinct cultures: The culture of reason, and the culture of irrationality. In this high-technology world, poor societies are poor for a reason. They wallow in superstitions, irrationality, and tribalism. Attempts to make these poor societies rational have mostly failed.

The developed world is on a downward slide. However, the so-called emerging markets are getting worse much faster, with tyrannical governments emerging rapidly, as the institutions left by Europeans continue to degenerate. When these poor societies copy western institutions, those institutions rapidly mutate to cater to the underlying tribalism, often making the situation much worse.

As an example, India has been trying to copy high-technology of the West. In the linked, I explore why India’s experiments to go cashless will not only fail but will end in a disaster.

Investors are often provided rosy picture of the situation in these poor countries. At a recent mining conference, there was a panel discussing about opportunities in mining that exist in Mongolia, Philippines, Indonesia, Vietnam, Papua New Guinea, etc. The mining companies represented went on and on talking about the fabulous grades and projects they have. I asked them if they could tell me the total money they had raised from the market and compared it with their market capitalizations to give me a feel for the value they had created for their shareholders. Not one of those companies responded.

None of the above means that I should not invest in these poor, backward countries, but that I usually find better value on risk-adjusted basis in the developed world. That brings me to Japan, a country I adore, and Irving Resources, about which I have written in the past and is one of the rare companies that I see as a tenbagger.

Japan has among the highest-grade gold mines anywhere in the world. Very high valuation of the Yen and a rapidly emerging high-technology industry meant that until the last decade Japan was not a great place to explore for gold and other metals.

While the Yen has fallen and the economic structure of Japan has become more conducive to new exploration, most investors haven’t become aware of this change. That is what makes me very excited.

Irving Resources (IRV.CSE; $0.65) is run by Akiko Levinson and Dr Quinton Hennigh. I have in the past worked with both of them and have a lot of respect for their capabilities. After they sold Springpole Project, a 5 million ounce deposit, Ms Levinson has shifted her focus to Japan, where she now lives half her time.

IRV has four projects in Hokkaido and one in Sado island–the latest acquisition was made last month. My interest is mostly in their Omui project–some of the rock sample data they have released are among the very best I have ever seen.

They are operating in Japan in close relationship with Mitsui and have continued to increase their land position, including acquiring surface rights.

IRV has more than $6 million in cash, a very tight share-structure, and market capitalization of around $30 million on a fully-diluted basis. My clients and I are well-invested in IRV and intend to increase our ownership if the share price falls.

Warm regards,

Jayant Bhandari

Associate: Rajni Bala

 

 

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