What it Looks Like When a Hedge Fund Loaded with Natural Resource Stocks Suffers a $2 billion Melt Down

St. LOUIS () -- In a maturing commodity boom a well regarded fund manager might assemble a cycle-leveraged portfolio filled with small cap natural resource stocks. Nearly three-quarters of the holdings might be venture board listings. Three fifths of the stocks might be mineral exploration or development companies with a propensity to consume cash rather than produce it. The most favoured minerals might be gold, oil & gas, copper and uranium respectively (see tables below for detail).

At peak prices in the past year, these stocks boasted an aggregate market value of around $36 billion. Not much later the same stocks are worth just $12 billion. That's a $24 billion wipeout in total, or 72%, and a $2 billion loss to the portfolio based on its percentage ownership.

Naturally the cost of entry to these stocks was extremely favourable since company after company was passing through your offices desperate for your imprimatur, but mostly your cash. Not only did you benefit from preferential and early access, but you are also the gateway drug for investment bankers shopping IPOs and mergers, dependent broker dealers, opportunistic market makers, and legions of PR types.

It's almost a license to print money as long as things don't change and prices are moving higher in aggregate. Well, they do change. And so quickly that it's enough to convert you to the Hobbesian view of life as solitary, poor, nasty, brutish and short.

A previous haven for small cap, blue sky companies can suffer new regulatory impediments or a simple decline in credibility. Market makers may kill the golden goose with absurd spreads. Credit might dry up, which is a nasty thing when your portfolio is overweight with negative cash flow statements. The American dollar might become unexpectedly stronger and abate a key commodity price propellant. It would also magnify the losses of cash-burning stocks quoted in non-dollar currencies that dominate the portfolio. The supply and demand story that was so favorable might shift more suddenly than the China and India meme has allowed.

Your clients may be taking margin call upon margin call, or they're just desperate to preserve what wealth they injected or to deal with their own deleveraging. They have little alternative but to phone in some big redemptions. However, the redemptions are impossible to honour if you liquidate any more of the portfolio since bidders have vanished and you are the principal source of attention for short sellers.

At that point the money printing goes into reverse and the losses become staggering.

Gladstone Pacific Nickel Limited GPN
Exile Resources Inc. ERI
Kansai Mining Corp. KAN
Angus & Ross PLC AGU
Oxus Gold plc OXS
Weatherly International plc WTI
Ascent Resources Plc AST
Aberdeen International Inc. AAB
Continental Precious Minerals... CZQ
Emgold Mining Corporation EMR
Pan Pacific Aggregates plc PPA
Pacific Ore Limited PSF
Jumbo Petroleum Corp. JBO
Arthro Kinetics PLC AKI
Peat Resources Limited PET
Western Uranium Corporation WUC
Buffalo Gold Ltd BYBUF
Van Dieman Mines Plc VDM
Energem Resources, Inc. ENM
ESI Environmental Sensors Inc. ESV
African Eagle Resources plc AFE
MIDLANDS MINERALS CORP MEX
MAJESTIC GOLD CORD MJS
PETRONEFT ORD EUR0.01 PTR
Oakdene Homes plc OKD
Ithaca Energy Inc. IAE
FORTERRA ENVIRONMENTAL CORP FTE
Maghreb Minerals Plc MMS
MONTO ORD NPV (DI) MON
Fletcher Nickel Inc. FL
Sonic Technology Solutions Inc. SNV
ANGLE plc AGL
GOLDEX RES CORP GDX
Constellation Copper Corp. CCU
Mart Resources Inc. MMT
Mawson Resources Limited MAW
Finavera Renewables Inc. FVR
Poseidon Nickel Limited POS
Bluerock Resources Ltd. BRD
Alliance Pharma plc APH
Great Western Minerals Group... GWG
GOLDEN ODYSSEY MNG INC GOE
COOPER MINERALS INC CQ
VRB Power Systems Inc. VRB
Taliesin Property Fund Limited TPF
Starcore International Mines... SAM
DYNAMITE RES LTD NEW DNR
Earthport plc EPO
True North Gems Inc. TGX
Sound Oil plc SOU
TNG Limited TNG
Antrim Energy Inc. AEN
Niblack Mining Corp. NIB
PetroLatina Energy Plc PELE
Rurelec Plc RUR
THOR MINING ORD 0.3P THR
XCITE ENERGY LIMITED XEL
African Minerals Limited AMI
Minco plc MIO
Tiomin Resources Inc. TIO
Norton Gold Fields Limited NGF
Hawkeye Gold & Diamond Inc HKO
APOGEE MINERALS LTD APE
ODYSSEY RES LTD NEW ODX
Cash Minerals Ltd. CHX
GLASS EARTH GOLD LTD GEL
Nventa Biopharmaceuticals Corp. NVN
Selwyn Resources Ltd SWN
Tagish Lake Gold Corp. TLG
Extract Resources Limited EXT
Brinkley Mining Plc BRM
StrataGold Corporation SGV
Turbotec Products Plc TRBO
North Atlantic Resources Ltd. NAC
IMPERIAL PETROLEUM IPMN
First Point Minerals Corp. FPX
GARRISON INTL LTD GAU
IPSA Group Plc IPSA
Syndicate Asset Management plc SAM
ECOMETALS LIMITED EML
Apace Media Plc APA
Tanami Gold NL TAM
Petroceltic International PLC PCI
Aurora Russia Limited AURR
Route1 Inc. ROI
IMMUNOCELLULAR THERA IMUC
Linear Gold Corp LRR
Linc Energy Ltd LNC
Grange Resources Limited GRR
TNR Gold Corp. TNR
Triple Plate Junction PLC TPJ
Empire Energy Corporation Intl. EEGC
Piedmont Mining Company, Inc. PIED
High Arctic Energy Services... HWO
Stealth Ventures Ltd. SLV
Acta S.p.A ACTA
Nordic Diamonds Ltd. NDL
Pure Nickel Inc. NIC
GOLDEN ARROW RES CORP GRG
Azure Resources Corporation AZU
Sutter Gold Mining Inc. SGM
CDS Oil and Gas Group plc CDS
Nkwe Platinum Limited NKP
Reed Resources Ltd RDR
Tyhee Development Corp. TDC
Lombard Medical Technologies PLC LMT
Firestone Ventures Inc. FV
GUARDIAN EXPL INC GX
Neptune Minerals Plc NPM
Arian Silver Corporation AGQ
Sola Resource Corp. SL
Explorator Resources Inc. EXO
Cross Lake Minerals Ltd. CRN
Vangold Resources Ltd. VAN
JAVELIN ENERGY INC JAV
Golden River Resources... GORV
High Desert Gold Corporation HDG
Cape Diamonds Plc CAPE
Norseman Gold Plc. NGL
Sparton Resources Inc. SRI
Xemplar Energy Corp. XE
Commerce Resources Corp. CCE
EMED Mining Public Limited EMED
ICARBON CORPORATION ICRB
Natasa Mining Limited NSN
ATW VENTURE CORP ATW
InNexus Biotechnology, Inc. IXS
OPEL International Inc. OPL
CHEMOKINE THERAPEUT CHKT
Richview Resources Inc. RVR
Horizon Oil Limited HZN
Wogen Plc WGN
Opal Energy Corp. OPA
Plantic Technologies Limited PLNT
CENTRIC ENERGY CORP CTE
Eden Energy Corp. EDNE
Rancher Energy Corp. RNCH
EUROPEAN EQUITY TRANCHE INCOME EET
Mantra Resources Limited MRU
GRANDVIEW GOLD INC GVGDF
GLR Resources Inc. GRS
Xtract Energy Plc XTR
Trans-Siberian Gold plc TSG
Cadiz Inc. CDZI
African Copper plc ACU
Norsemont Mining Inc. NOM
Copper Mesa Mining Corp CUX
Rockhopper Exploration Plc RKH
Raven Mount Plc RAV
Kopane Diamonds Developments PLC KDD
Baltic Oil Terminals plc BTC
Palmaris Capital Plc PMS
Archipelago Resources PLC AR
AFC Energy plc AFC
Toledo Mining Corporation Plc TMC
Campbell Resources, Inc. (USA) CBLRF
INTERNATIONAL BETHLEHEM MNG IBC
Oilexco Incorporated OIL
Optos Plc OPTS
Canstar Resources Inc. ROX
BowLeven PLC BLVN
International Tower Hill Mines... ITH
GTL Resources plc GTL
Phytopharm plc PYM
NWM Mining Corporation COL
Target Resources plc TGT
Cardero Resources Corp. (USA) CDY
Tribute Minerals Inc. TBM
Gulf Keystone Petroleum Limited GKP
Mediterranean Resources Ltd. MNR
UMC Energy PLC UEP
International KRL Resources... IRK
Kalahari Minerals Plc KAH
Novint Technologies, Inc. NVNT
Sinosoft Technology plc SFT
Mintails Limited MLI
Central Sun Mining Inc. SMC
RPT Uranium Corp. RPT
Faroe Petroleum plc FPM
White Nile Ltd WNL
Longford Energy Inc. LFD
Matra Petroleum Plc MTA
Romarco Minerals Inc. R
Medoro Resources Ltd. MRS
Throgmorton Trust PLC, The THRG
Amerisur Resources plc AMER
ADVFN PLC AFN
Hot Tuna International Plc HTT
Caspian Energy, Inc. CEK
Shaftesbury plc SHB
Nevada Geothermal Power Inc. NGLPF
Aurelian Oil & Gas PLC AUL
Rugby Estates Investment Trust... RUGB
Apex Silver Mines Limited SIL
EREDENE CAPITAL PLC ERE
EAST ASIA MINERALS CORP EAS
Largo Resources Ltd. LGO
Blackstar Investors Plc BLCK
Inland Plc INL
Active Capital Trust plc AIT
First Metals Inc. FMA
UK COAL PLC UKC
Speymill Group plc SYG
TEKOIL & GAS CORP TKGNE
Aggregates
Base Metal Catalysts
Clean Coal
Coal
Commodities Trading
Copper
Diamonds
Ethanol
Fuel Cells
Gas
Gemstones
Gold
Graphite
Industrial Minerals
IOCG
Iron Ore
Minor Metals
Nickel
Oil & Gas
Peat Fuel
Platinum
Renewables
Silver
Tantalum
Titanium
Uranium
Vanadium
Water
Zinc
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