Know This Before Investing in African Miners

Episode Transcript
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(00:00):
But I think, you know, between the gold mine, you know, with
two grams of tonne in Ghana and one with 20 grams of tonne in
Burkina Faso, you're probably still going to go for the one in
Ghana just because of the political risks.
All righty shit won't happen today.

(00:25):
It's a bit mate. Travis Ricciardo There is a hate
happening around the mining world today.
But there's a lot the rack attack in Arizona is is
ratcheting up the there's uranium mines being expropriated
by African governments. Barrack is continuing to be
marred by, you know, it's challenges and it's it's hated
by the market for being a worse performer than gold.

(00:46):
And, and Tim Stamosa, mate, he'san African investor and I had
the privilege of speaking to himearlier.
We're going to play his insightson what it's like to to invest
in Africa, what you need to knowabout the various countries,
their appetite for capital and the risks that you face.
Can't wait. That was a that was a wicked
chat. I'm really excited to to share
that one because people often paint the whole continent with

(01:08):
the same brush and it's not justified.
So it's awesome to hear, right. But there's a a heap of stuff
going on in the market that we just don't have the time to to
talk about. But raisings that develop
Bannerman to name. Big raises Big raises develops
$180 million Bannerman's was a chunky size.
Yeah, 85 bucks from them snow line.

(01:29):
They came out with their PEA numbers, which were pretty
chunky. Emerald had a snag and Hope
Downs but Rio Hancock announcinga big investment so not not to.
Mention great Lands debuting on the ASX today.
They are long. Yeah, that's been a long-awaited
debut, mate. There's just a bunch going on, a
bunch going on and we probably missed half of the the things

(01:51):
got all the gold razors recentlytoo anyway.
Start us off mate. Rack attack.
We're going back the rack. Attack in Arizona is heating up
even more, JD. This deal has my bandwidth.
I'm loving it. And we've now got confirmation
that it's it's properly competitive because Quintera has
submitted a bid themselves at 5.7 cents where we left off on

(02:11):
Friday. Camel, they had upped their bid
twice in the same day and snagged themselves a 5% stake in
the company. The original deal was $0.05,
right? That's what was agreed.
The first up was revision revealed Friday morning, 5.3
cents. And then by Friday evening it's
already 5.5 cents. Camel, Camel, Camel, all three
of those, right? So of course, yesterday when

(02:32):
this when Monday market open comes around, my eyes glued to
the screen to see what the the latest development would be on
the rack attack in Arizona. And I wasn't disappointed, JD,
because it quickly became apparent that Quintera, the
private equity group, they had been working hard over the
weekend, Quintera managed to strike a deal with RCF, who you

(02:53):
know, when you look at the public data that's available, it
appeared like RCF was the only substantial shareholder other
than the two bidders in the racehere.
RCF, they had a 7.4% stake in the ordinary shares of the
company. That's 256,000,000 shares, but
also in their name were 62,000,000 Opies.
These were already in the money because they had an exercise

(03:13):
price of four cents. So like certainly a decent stake
when you put it all together. And also where we left off on
Friday, because it turned out that it was Camel that scooped
up the 5% block trade at at fiveand a half cents.
It meant that Quintero likely still only had 12% of the
company themselves, but they were clearly keen to build that

(03:34):
to a higher state to have more influence.
They did a bit of work over the weekend.
They struck a deal with RCF Matefor the entire holding of RCF,
all the shares, all the options.They paid 5.6 cents for the
shares each and 1.6 cents for the options each.
And you, you're probably thinking, why on earth would RCF
be willing to part ways with at stake when this is a competitive

(03:57):
situation? Why, you know, you're giving it
away, but you're not getting theupside of it.
Well, excellent question, JD, And I know you were thinking of
it because if you read the sale deed sign between RCF and
Quintera Quintera, you'll see that RCF sold their stake.
But for all intents and purposes, if there's any deal
uplift from where they sold out,they still get paid and they get
to keep 100% of that uplift, not50% like we've seen more

(04:20):
commonly like I think when capital drilling was they sold
out of their their predictive stake to to Perseus.
Yes, yeah. So they would share 50% of any
an uplift if a change of controlhappen in the next 12 months
from memory. Don't you wish you could just
have them when you offload your shares?
Like yeah, yeah, yeah. By taking the.
Outside, yeah, I'm happy to sellthem to you, just as long as I
get all of the upside that comesfrom this competitive situation.

(04:41):
But you take the downside though, that's all good.
Yeah, and you know, RCF 100% of the upside the entire.
Upside so Kinterra get their feel.
They sit at a bit over 19% of New World.
They then lob a bid mate. They do, mate.
We learned this pretty quickly Monday morning, too.
First, the story appears in Street Talk.
They reveal that Kinterra has a privately lobbed a bid to the

(05:04):
board of New World at 5.7 cents per share and this leak warrants
an announcement out of New WorldResources themself in this brief
release. What they what they say is that
New World confirms it received an unsolicited non binding
conditional and indicative proposal from Quintero Capital.
Indicative proposal is incomplete and subject to a

(05:24):
number of conditions and the board is in the process of
reviewing the proposal. So I read this and I'm just
thinking mate, Hallelujah like this.
This is officially a public bidding war now like a bidding
war it is it's beautiful. These don't come around everyday
and before I get two carried away, there's a few caveats that
are sort of necessary. So Quintero's offer is is

(05:47):
conditional, right. You can say that in the wording
unsolicited conditional. So we we don't know what these
conditions are that have been presented to the board, but or
if the conditionality in this intheir offer risk is of
comparable conditionality to what has already been agreed in
the camel offer. And, and that conditionality
can, can matter a bit here, but,but this is a bidding war.

(06:09):
Like now we now we see New worldstock trading a tad north of
Quintera's offer price already. Like if you look at the volume
that transacted today, like shares of trading at 5.8 cents,
Quintera's, Quintera's conditional bid that it's just
a, you know, an indicative proposal put to the board that's
5.7. So market's getting excited
mate. So what's next?

(06:30):
I'm excited. What's next?
Well. Who is it?
The the new world board, they have to determine whether I can
this Cantera offer is capable ofbecoming a superior offer or
not. And I think the answer to this
question is going to prove to beyes.
And of course, we've got the placement still hanging in the
background from Friday. Now remember that placement was

(06:51):
conditional on no other offer received within 14 days that is
deemed to be capable of becominga superior offer.
So which point when this when this offer from Quintero gets
deemed to be capable of becomingsuperior?
Well, that placement falls away,right?
Because it was conditional and hence the takeover's panel
proceedings will also fall away.So just put all of that to bed
now and when the when the answerto to all of this is is yes,

(07:15):
then remember Camel, they have amatching right as part of the
this game implementation deed. And in effect, what does all
that mean? It means that we get to witness,
we get to find out the answer tothe question, who wants this
more? Who is willing to pay more Camel
or Quintera? That's ultimately where this is
right now. Like assuming the conditionality

(07:37):
penned to the board in the in the Quintera offer is is of
similar conditionality to the Camel's agreement.
And we get to be like people in the crowd at a home auction and
there's two bidders left, right.And they get to keep on going
higher and higher until one of them says too much.
You, you have it, mate. Like I, you know, I, I can't
justify this price and all of this, all of this to the benefit

(08:01):
of the homeowners of that home auction, JD, or in this case,
the new World resources shareholders, all to the benefit
of them. I'm so pumped.
Having a win, yeah. It's such an interesting dynamic
seeing a private equity group gohead to head against a minor.
Have you got a favorite mate? I don't, I don't, I don't have a
favorite because I'm just like not familiar with the bidders
very well. But I do actually think I'd

(08:23):
rather be like, like if, if I was completely indiscriminate
about price and I didn't care about price paid, who I think
has a better chance here. I actually think that even
though like Camel's got deal protection and a matching right
and assigned an agreed scheme implementation deed, I think the
20 like 19 odd percent stake that Quintero has is, is
actually more, more influential here.

(08:44):
So I think that kind of matters more if they if they both have
similar levels of of yeah, insensitivity to price, like I'd
rather be Quintero, yeah. If you're as in the ways on this
one as we are mate, the the two founders of Quintero did a potty
not too long ago. You can you can just search
their names to check it out, or in yesterday's director special
if you want to get a bit of a flavour for what their approach

(09:06):
to to owning these assets is like.
Cheryl Kamal, if you want to come on the podcast and be part
of the rack attack in Arizona, we'll have you on.
And same to same to anyone at Camel.
Yeah, yeah. Same to Saxophone is free.
Same to Nick Warwick, would we have him on to try and solicit
the best offer that? Would be pretty much get a third
party involved. Yeah, why not?
All right mate. Well, Antler is an old mine with

(09:27):
a with a rich history. Operations started here in the
early 1900s actually found the deposit in the 1870s and I was
looking at some of the cross sections and some of the the
long sections in the recent New World presentations.
I, I found it interesting. I was looking at the the decline
just waving its way down and theconsistency of the ore body
there and mate, I couldn't help but think of Derek Hurd and

(09:50):
Sandvik ground support. He's.
Been running that business for 20 years mate.
Let's just go to the Goodman himself.
Here he is. How has DSR changed under the
the big umbrella of Sandvik? I'd better be careful.
What I say is that right? They pay the bills.
One of the challenges that DSI and I say that same by itself

(10:11):
had was trying to drive this automation strategy and, you
know, efficiencies without the connection to equipment.
So now we're part of one business.
We get the opportunity to work with the underground drills
team, the rock tools team, the other parts of Sandvik to work
collaboratively to develop better systems for the mining

(10:32):
houses and clients. So actually it's really good.
And one of the good examples is the resin injection systems that
you've spoken about before that,you know, now that's one of the
pushes that we've had through the underground drills team to,
you know, work with those guys to have a kit you can put on a
jumbo, but now you can injectionbolt off a jumbo.
Now that wasn't around from a Sandvik perspective a couple of

(10:55):
years ago. And you know, certainly it's a
big drive that we've been able to push through the Sandvik
machine. There we go mate, go Sandvik
ground support. OK, JD, you've been noticing a a
growing trend. Maybe it's alarming, maybe it's
abnormal, maybe it's not, but more minds are getting
nationalized. What's going on?
They are mate. There's a few things to to chat
about here. So I want to chat about the

(11:16):
recent resource nationalism kindof displays we've we've seen.
I want to also chat about why the market hates Barrack and has
done so for quite some time. And then we're going to share
that chat we mentioned with Tim Stemosa, which I'm pretty
excited about. So you want to start by talking
about Niger? How come?
There's this company Samir, it is the uranium miner of Niger.

(11:39):
It's a joint venture between Orano who owns 63% of it and
Superman which is Niger State owned mining entity, one of the
remaining 37%. Now this has been operating and
mining uranium since the 70s andit's turns out, you know, for a
long time about 5% of world uranium supply.
So not an insignificant amount. Now recently there was a bit of

(12:01):
a step down as one of the operations the the the
underground mine called Komenac there ceased and on the back of
political instability, they had a military coup in 2023.
We've seen that sort of step down to kind of 2 to 3% of world
supply. But looking at other commodities
that we've spoken about in the past couple of years, you know,
you take those sorts of amounts offline or you you move it and

(12:23):
stuff and it can have pretty sizeable effects on commodities.
But if we look at specifically what's happened in Niger, they
got fed up with a company that'spredominantly owned by the
government of their former colonial ruler, France, and they
gave Arano the boot. So they're nationalizing the
asset. Not a surprise here,

(12:43):
particularly since the coup in 2023 in countries there, the
relationship has been deteriorating.
The share took control of the the assets took operating
control late last year as well. They accused the the French in
this case have taken more than their fair share to to justify
the expropriation. And as you'd suspect, the the
French disagreed with that. But what can you do when the

(13:06):
mine is where it is? Nasty mate is this?
Is this as simple as there's just wanting a bigger slice of
the pie like like ordinary resource nationalism?
Or is there like, is there more to it in terms of like where is
the uranium production going to here and does that change?
Like what you can clearly see isthat that they have been fed up
with the relationship with France.

(13:27):
So they've lent far more into the, the Russian sphere of
influence and partly China as well, but they've they've moved
away from the the West. You can see that with the the
Wagner Group, which has been allthroughout the, the sort of
Sahal from Burkina, Nigeria, Central African Republic, Mali,
It's, it's a theme that sort of spread across those countries.

(13:50):
And you know, what we've also seen in a lot of those countries
is military crews. So they want to keep the
economics more in country. This is a theme across the world
and it's a theme kind of as old as time, you know, and I don't
think we're completely immune from it in the West here either.
You know, you can't just pin it down to, to one or two kind of
factors. I think it's a growing trend.

(14:11):
And I think there's like contagion with this recent
resource nationalism. I think people like here in
Nigeria will see what's happenedin Guinea, Mali and these sorts
of places. They realize, hey, we we can get
a bit more of the economics. And I don't think they're
completely, you know, out of theloop in saying that, hey, they
might not have had the best dealif we go back to the the 70s and

(14:34):
beyond. So it's not completely
unfounded, but it is what it is.And where it leaves the uranium
market is an interesting perspective.
Like firstly, I think it's something that commodity traders
kind of love because markets become more opaque.
The supply isn't leaving the world market, it's still there.
Costs escalate because it's not the the freest and most easily

(14:56):
kind of traded market anymore. Things are rerouted.
As well as the losers. Yeah, exactly.
So it's kind of interesting. I do think we see a bit of
tightening in the, the uranium market and perhaps that has a, a
bit of upside risk to it in time.
But I, I don't think we should dwell too much on the point of
resource nationalism because Timis going to share phenomenal

(15:16):
insights on, on that kind of point, mate, He.
Yeah, he made some great, great points.
And as it relates to the type ofstrongman leaders that pop up
in, in these types of countries and how they appear to a crowd
that promised the world that, yeah, there's this kind of
rinse, repeat dynamic. I I found that so interesting to
kind of contextualize what it what those long term risks are
when you play in certain parts of the world.

(15:37):
Absolutely. He is a wealth of knowledge and
you see it across the globe, buthe's got real, real great
insight in into Africa. But my mind was sort of bouncing
around going in different directions.
I was sort of starting to think about Mali and that kind of led
to me thinking a bit about Barrick and what's happened with
their Lulu complex there. And you know, in the process of
kind of having the economics rejigged and then so I.

(15:59):
Can't talk about Barrick mate. Yeah.
And then what's happening in in the Middle East, obviously their
huge growth project is Rico Dick, which sits well less than
100 kilometers from the border of Iran in western Pakistan.
So yeah, we've got a lot to to talk about here there.
This is a $50 billion U.S. dollar mining company.

(16:22):
Now you could you could stronglymake the argument.
I think that is too big and and too many assets to manage.
But we'll we'll leave that for amoment.
And the share price has just notperformed well.
And this is not just a one year phenomenon, A2 year phenomenon.
You're going back in a number ofyears really since sort of like
2020 on the back of the big dealthey did in 2019 like there is
in gold. 2019, yeah. Yeah, exactly.

(16:44):
There's been huge underperformance for a host of
reasons, right And. Production has fallen like.
Like consistently lower costs have escalated.
Granted, that's been a theme across the industry, but.
Issues in many parts of the world with their host countries.
Yep. And they've got a lot of capital
that needs to be spent going forward.

(17:06):
And I found it particularly pertinent reading comments from
Agnico Eagle, Agnico Eagle's CEOjust yesterday saying the only
metric you need to hit as a goldmining company to be a valid
gold mining investment is to outperform gold bullion and.
Yeah, Why do you, why do you bother owning A mining company

(17:26):
if it's not operating? Leverage the gold price.
Exactly, exactly. And that is the question we're
going to have a crack at answering now, mate, because
it's become consensus to be bearish.
Barrick I. Don't know if it's a bit
consensus to be negative Barrickbut I don't know.
I don't know if it's consensus to be bearish Barrick in a gold
bull market. Yeah, I'll take that.
Yeah, I think that's fair enough.
It's not as if these people havespecific but you know, explicit

(17:48):
short positions in the stock, but they.
It's easy to to like, yeah, point out that they have been
drastic underperformers in a sector where you've got a huge
rising tide being the gold price.
Yeah. And it's easy to say nobody's
going to back you for a growth project in Pakistan.
That's another kind of common refrain.
And you know Chuck in the portfolio 10 to 15% of your your

(18:10):
earnings coming from Mali where your relationship is less than
friendly as well. All these things kind of can
compound the discount that they are getting relative to their
peers. So the CapEx overhang is real.
They have spent a decent amount of money on Pueblo Viejo in the
Dominican Republic. That is that is scaling up.

(18:32):
They have earmarked a lot to be spent at Lamwana in Zambia.
So it is Lamwana super pit. Exactly and that's their
evolution to becoming more of a copper producer rather than just
a gold producer. And then you've got Rico Dick.
So this is the asset that they own 50% off.
It's a huge copper gold story. People have known about this

(18:55):
project for a long, long time. Barrack have had issues with the
government. They finally have got to a point
where they're happy and keen to invest and make this the the
horse they're backing and investors are just not not
warming to it so. What's the, what are the latest
kind of consensus numbers aroundwhat CapEx is going to be in
Yeah, to bring Rico Dick online.Like I see, I see kind of around

(19:17):
that 9 billion US kind of quotedrelatively frequently out of the
the South side and that's a lot of money to be spent to bring
this online. Now granted what they they've
got a 50% stake in it. What, what share would they
actually be having to, to commitupfront?
Like it's still an enormous CapEx profile to come come out
of Barrick. And the weird thing about gold

(19:40):
miners is, is often they they don't actually make a hell of a
lot of free cash flow throughoutthroughout the the cycle in the
good times, they make it make a bit.
But you know, this is a good time right now.
And they're going to be reinvesting the majority of that
into a part of the world that has a big a big question mark
over it amid kind of heightened geopolitical conflict and, and

(20:00):
the the key risk of kind of destabili destabilizing a
region, which is already pretty.Destabilized.
Yeah, Yeah. I was flicking back through
their most recent quarterly and there were some super
interesting comments from Mark Bristow, the CEOI read a couple
out because I think they're super relevant here.
So Barrack has a distinct approach to growth, one that
avoids the pitfalls of industry short termism in favor of long

(20:20):
term growth, internally funded value creation.
While others pursue shortcuts through M&A, we continue to
invest in our own future by building and not just buying,
creating real value. So it's, you know, it's, it's
aimed, it's kind of pointed. And it's not as if they haven't
tried those other means in the past.

(20:42):
They've done a lot of acquisitions.
Their, you know, their share count over the over the decades
has increased like many gold miners quite substantially.
It's in this point in time, the means of growth that they're
choosing is to invest internally.
But yeah, yeah, yeah. You can't exactly accuse them
for for not having a crack here,but they are getting severely

(21:03):
discounted in in the market fromit like Agnico Eagle is the is
the stand out that that's the one that kind of gets the
premium valuation. They have assets, you know, more
or less purely in in Tier 1 locations and they are big
operations that they can continue to invest in and see
those returns from. They've done MNA well, they've
executed on it. And then you have that sort of

(21:25):
pack that try it trades in and around one time to NAV and you
have a big step down to to whereBarrett kind of currently
trades, right? That's at spot GOG.
You're saying that they tried less than one time stamp?
Yeah. Correct.
Yes, Yeah, yeah, yeah, yeah. Yeah, yeah, yeah, yeah, yeah.
I, I think it's going to be an interesting decade for them.
I don't know. I don't know how it pans out.

(21:46):
I also think that I actually could like if there was like a
like an if Elliott had had the kahunas to do another, another
activist campaign in a resourcescompany that barracks barracks a
prime candidate for it in some ways.
It's an interesting 1 though, because a lot of the criticism

(22:06):
from other investors about thesegold companies is reserves is
just diminishing, diminishing and they don't have a growth
profile. And that would be the case that
Elliot, I'd imagine would make is that cut off the cash flow
that you're going to send to Rico Dick and other growth
projects and focus on what you've got and just harvest the
cash. They it might be there might be

(22:26):
like I think there's low hangingfruit on portfolio
rationalization that you can youcan argue for the likes of a
barrack. All your operations stand up on
their own feet. If not, sell, sell off the ones
that that don't focus on. Yeah, like what Newmark's done
and they've done that in part selling, selling Donlin.
I mean they could easily do it more.
I think there's far too many assets in that portfolio you.
Reckon that regret selling Donlin.

(22:49):
It's an interesting question, right I I one day that could be
an enormous mine. It's a super.
Pertinent question, right? Because the exact reason why
people on the other side of the table in that transaction bought
the mine is because of their fears over what's happening in
Mali and what perhaps could happen in future in Pakistan.
Gold is the the horse they're backing and they want it to be

(23:12):
large scale. Heaps of answers and in a Tier 1
jurisdiction. Protected by the rule of law, as
Tim Stare Moser will say. And yeah, I'm really, really
keen to play play that conversation, which we'll do
now. But before we play the
conversation with Tim, JD, I want to briefly tease a
controversial interview that we've got coming out next month.

(23:33):
I won't tell the money miners ofthe yesterday's.
Here's a tiny snippet. You know that one the other day
was what's the drill recovery indiamond hole, not holes, not
applicable. I'm like, you do get core loss,
all right. The drillers put blocks in the
wrong way around. People drop trays of core and
just stuff it back in and they don't tell you.

(23:55):
Now, are you saying that none ofthat ever happened in your drill
program? Now, I can't speak for the
quality of the logging by the G OS, but I can tell you, JD, none
of that ever happens on AK Drill.
Drill program. K Drill knows that sample
matters. It's the slogan.
It's enforced by the enforcer Ryan O'Sullivan himself.
Here I was thinking K drill onlycared about meters mate.

(24:16):
No no no no mate, they're more than just a pretty face.
Productive drilling plus clean, reliable sampling you can trust.
Mate, if I was out there trying to find the next Rico Dick,
trying to find the next Kamoa, trying to find the next
Escondida, next Super bit, firstcall would be to K Drill mate.
I'd be getting Ryan O'Sullivan on the phone.
Stat you can trust their sampling mate.

(24:37):
Go K drill OK for the chat with Kim Stemosa kicks off talking
about Zimplats. I actually have historically had
an investment in Zimplats, whichis a very good platinum mining
operation in Zimbabwe that you know, everyone runs for the
hills whenever they hear Zimbabwe.
But it's actually very well structured and cleverly done by

(24:57):
the guy who set it up. And obviously totally it's a
subsidiary. Of 87% owned by Impala they they
need to give them some streams so they're always going to pay
out free cash and. And it's actually a Guernsey
structured vehicle. It is, so it is.
A lot of the money sort of neveractually enters Zimbabwe.
The mining is done there and then it's sold and the money is

(25:19):
booked offshore. Obviously the Zimbabwean
government and people will do quite well out of it as well.
But yeah, I was actually involved in that way back as an
investor prior to implants making the the takeover bit.
I think it was like 2003 or something.
Yeah. So, so the Guernsey structure
makes it that Guernsey structureI think makes it a bit trickier
to to mandatorily take over the minority interests as well,

(25:42):
because if it's an Australian company, you could get to 90%
and then you know, force. But I think the Guernsey
structure actually makes that. Correct.
A trickier proposition. There's no compulsory
acquisition in Guernsey. It was actually deliberately
structured that there was a guy called Peter Vandersby who was
behind the Delta Gold back in the day.
I spoke to him at the time when I was doing the research into

(26:04):
the company Jesus a long time ago, but it's still going
strong. It's been a tremendous story if
you've held it for that long andyou've received the dividends.
Yeah. So there's opportunities all
over Africa, Ghana doing very well at the moment also with
gold. I was on a call last Friday with
the brokerage firm that we work with in Ghana.
There were talking about the currency having appreciated that

(26:25):
tremendously in recent months, partly on the strength of the
gold exports in the foreign exchange that's bringing into
the economy. The only stock we own over there
is MTN Ghana, which is the main mobile telecommunications
company. But when an economy is doing
well, often because of some minerals exports doing well and

(26:46):
earning them lots of foreign exchange, then the whole place
starts to do better. And the kinds of businesses that
we invest in also do well because consumers have more
money in their pocket and there's money circulating around
the economies. I'm curious, Tim, how have you
actually noticed the investability of the various
African countries change over time?
Yeah, yeah. Look, there's 54 countries in
Africa. It's a very diverse continent,

(27:07):
even more diverse than Asia, where I was before.
But I tend to focus on economiesthat have common law as their
foundation, which is something that I'm familiar with as an
Australian, and then obviously English as the language of
business. But in general, where I'm
focused, you know, Tanzania, Kenya, Uganda, Nigeria, Ghana,

(27:30):
Zambia, these are places that have a legacy of British
colonialism that shaped the way that the law has developed post
independence as well. And English is still very much
the language of business around the place.
So that makes it quite familiar for me.
Also the way that corporations, law and stock exchanges operate,
they're quite similar. They're not as sophisticated as

(27:53):
Australia for example, although they are in certain ways.
For example, the way where we have a chess system and the way
that shareholdings are registered electronically. 1
exception oddly is Namibia. There's still paper based
settlement there. It's very hard to get a
custodian says it's a bit odd and maybe I think has a a German
colonial history. I don't know whether that's got

(28:13):
anything to do with it. But in general, they're all
moving steadily towards being more modernized and offering
better disclosure, and things are improving.
Am I right in kind of characterizing Nigerian stock
market is kind of uninvestable say five years ago and and
what's changed? So Nigeria, when I started my
funds back in 2020, had a very odd exchange rate mechanism

(28:37):
where there was a peg of sorts at about 450 to the US dollar.
But foreign investors that had legacy investments on the Stock
Exchange because there had been a boom from about 2011 all the
way up to shortly before 2020 when I started the fund.
And people would sell stock and want to repatriate their

(28:59):
profits, but they couldn't because there were no dollars
available at banks and custodians to change your
Nigerian currency into so that you could take it home.
What was actually going on was, you know, giant corruption
really, where the scarce foreignexchange that the central bank
had was being allocated to favorable or to favorite

(29:20):
parties. So there was a black market that
developed in the true exchange rate was more like 950 or 1000
to more than double the officialrate.
So I took the view that it was uninvestable at that time for me
as someone putting new money in because how the hell was I ever
going to get it out? That said, I did find a way of
getting money in at a much better exchange rate by buying

(29:41):
jewel listed companies. There are some Jewel listed
Nigerian shares in in London. So you could buy the shares in
London at the black market exchange rate effectively and
then transfer those shares into Nigeria and sell them and get a
a much larger amount of local currency than you would by
wiring your dollars straight in at the official pegged rate.
So we tested that. We put a little bit of money in,

(30:03):
but in subsequent years there was a change of a regime.
New president came in and in hisinauguration speech he basically
said, right, the fixed currency is gone, Currency as of tomorrow
is free floating and we've actually made money in Nigeria
since then. We don't have a huge percentage
of the fund in Nigeria. I think it's about 8% versus
sort of 35% in in Tanzania and 30% in Kenya.

(30:26):
But at the moment it is actuallyback to being on the radar and
investable because of the currency convertibility problem
having been fixed to a large extent.
And we actually have a small position in something that
that's gone up six fold so far this year.
That reminds me a bit of my old days, investing in the right
mining stock so you can really get some big pops.

(30:47):
Either 6 fold or one sixth in a short period of time.
Yeah, yeah, there. You.
Go, is it possible? So like, do do you tend to kind
of have a bit of a sense when a country is becoming more hostile
to foreign capital? We get this all the time in
mining where regime change comesand all of a sudden the
conditions are far more onerous and hostile on the existing
mines. The government wants to
expropriate a larger percentage of the pie and you can't have to

(31:10):
say yes. Otherwise I face a very lengthy
kind of arbitration process and that deters foreign capital.
Can you see those sort of symptoms coming before they do?
Tough question. It is a pattern across Africa.
And if you step back and look atthe reasons why, institutions
tend to be quite weak and the culture tends to be based on

(31:32):
personalities and strong leaders.
And I guess it's a function of the tribal nature of a lot of
the societies in these countries.
Although in other parts of the world that was also the case,
but a lot further back in history.
So generally what you'll find iseven a president from the same
political party taking over fromhis or her predecessor might

(31:55):
have completely different policies because it's based on
that person and the kind of people who follow them.
So yes, if you're a mining company that wants to develop a
great ore body over a period of decades, you do have that
problem because you do a deal with whoever's in power and
everyone's happy. The regime changes, whether it

(32:17):
be a new political party coming in or a new strongman or even a
person from the same political party as in Tanzania, the same
political party has been in power ever since independence,
like over 60 years. But the personality that comes
in and occupies the seat will have a different view on things.
They'll have different hangers on that they have to keep happy
and whatever. So there's always that danger

(32:39):
that the rules of the game change and I don't really see
anywhere where that doesn't apply or where it's going to get
all cleaned up and made predictable anytime soon.
Maybe a place like Botswana is alittle bit easier to operate in
than a lot of other countries where the institution seem a

(33:01):
little bit stronger and rules are followed more regularly.
So I guess, yeah, as a shareholder, you just have to
face the fact that there is thatrisk and it's something that the
company that you've invested in also needs to be cognizant of
and know how to manage. One observation I have of a lot
of the money companies that right in Africa is a tendency to
maybe try to minimize the payable tax by using interesting

(33:24):
structures or transfer pricing mechanisms to avoid what rather
wise be pretty onerous tax regime imposed by the local
country. Do you have any observations on
that strategy amongst the full of companies that you actually
invest in? Is it typically just an avoided
strategy because you pay the piper even more down the track
or what? That's a very good topic.

(33:44):
This is a very complex topic. And yes, the knock on natural
resources companies, which are seen as more extractive and
exploitive by everyone, but it also applies to multinational
consumer companies, that of the type that we invest in.
It's definitely an issue. A typical structure that
companies that we own will have is a multinational controlling

(34:06):
shareholder that might have between 60 and 75% ownership of
the local company. And then the remaining third or
one quarter of the shares will be in the hands of local
institutional investors, pensionfunds, high net worth people
living locally, foreign funds like mine.
And if the multinational companyis a good corporate citizen and

(34:31):
pays its obligations and avoids any sort of egregious transfer
pricing strategies and everything's hunky Dory.
And often the governments recognize that these companies
are very good employers and they're in the formal sector.
They all pay their tax obligations.
Their employees are in the system and on the books as pay

(34:53):
as you go taxpayers. And so they're compliant with
VAT and other Texas. So the government does very well
by having those kinds of of companies operating in their
countries. There are instances however,
where the multinationals try andpush it too far and there are in
fact a couple of companies that we're invested in now where

(35:14):
we're starting to see things that we don't particularly like.
So we need to raise it with withmanagements, but it's not unique
to mining and natural resources.When you are selling a product
locally to local consumers, I guess it's a little bit
different from when you're just taking it and putting it on a
boat and then sending it overseas and booking all the
profits offshore and not leavingmuch behind.

(35:36):
So I think that's where sometimes the mining industry
gets a bit of a bad Rep. I'm keen to get your thoughts on
a couple of different up and coming or established mining
investment jurisdictions at the moment.
And I understand there might be a different lens you'd apply to
a foreign mining company building mine in X country
versus you investing in an industrials company listed on
that country's Stock Exchange. But just curious to understand

(35:58):
your take on the investability of a few different African
jurisdictions at the moment thatwith Kenya?
Kenya does not in general have alot of natural resources.
So I think the government in Kenya, you know, maybe they
weren't as focused on extractiveindustries, frameworks and laws
and so on, but it was definitelypossible for them to operate

(36:21):
there and I don't think they hadany huge challenges.
Next door in Uganda, I think theregime is quite favourably
inclined towards mining and oil and gas projects is the huge
East African oil pipeline that'srunning from Uganda down through
Tanzania to the coast. Tanga.
The problem they've had is, is sort of climate change activists

(36:44):
not wanting Western banks, Oregon financial institutions to
to fund it. But Uganda it it seems quite
favorable and their currency hasbeen quite stable because of the
anticipation of this FX that's that's going to come in.
It's also big agricultural exporter.
DRC remains, you know, like the Wild West, a lot of people
making a lot of money there, sadly a lot of it in in sketchy

(37:07):
fashion. Zambia is a jurisdiction that's
very pro mining. It's had other issues with the
drought and currency weakness because of a debt default.
They borrowed a lot of money from the Chinese and they
couldn't pay back about a decadeago and they've been trying to
work through that. Jana remains a very favorable
jurisdiction for mining. I think there are a lot of

(37:28):
Australian companies operating over there.
Botswana remains a good jurisdiction and we still
operate, as far as I'm concerned, Zimbabwe, you know,
as I said, I have a history withthe Zimplats.
There are one or two gold companies that are doing quite
well. Just the currency problems in
Zimbabwe make it uninvestable for us.
It's just too hard because they still haven't got their currency

(37:49):
into any kind of pattern where it doesn't sort of devalue by
1000%. Every year they adopted the
dollar. The latest is that they've got a
new thing called the Zig, which is the Zimbabwean gold.
So it's supposedly pegged to gold and that's not working
either. So, you know, the place does
still function. And as Implants proves, you can

(38:11):
find ways of getting through it.What are the most underrated
frontier markets that the general population has kind of
ruled off, but you can see them as on the rise or improving
governance, improving rule of law, etcetera?
So, you know, of the top ten fastest growing economies in the
world at the moment, I think sixor seven are in, you know, my

(38:34):
university in Africa. And it's really just not
something that the rest of the world is focused on.
And I guess it takes a while forbiases to change and for the
word to get out and things to improve for the perception of
the risks and so on. It's still much riskier
investing in most of these markets, but you get paid very
well to take on that risk. Like you get more than

(38:56):
compensated for those risks. That's kind of the the thesis
that I have. But there are countries that are
really making an effort to cleanup their act and become, you
know, beacons of good governanceand this sort of thing.
A lot of people cite Rwanda as an example of that.
You know, they're, they're really serious about becoming
the Singapore of Asia, as they call it.
You go to Kigali and the streetsare spotless.

(39:18):
You know, there's, there's, you know, rules and regulations and
order and a lot of countries aretrying to clean things up.
But at the same time, you know, frontier markets are very
fragile. There are laws and rules and
regulations on the books that aren't necessarily followed.
And part of the skill of doing business and investing here is

(39:39):
working how to meander through the system that way.
Tanzania is an odd country because it has a socialist
history, but it's certainly being one that's done very well
for me, largely as a result of me going in when it was at a
cyclical low and then a change of regime that was more foreign
investment friendly and improvements happening.
In that regard I am. Cautiously optimistic on the

(40:05):
long term future of a place likeNamibia.
They've made some very significant offshore oil
discoveries. If the government can get that
right, I think it's total that has said that they are probably
going to go ahead with theirs. Even in a place like Nigeria.
They've taken some very hard economic decisions, swallowed
some bitter medicine and things hopefully can improve because of
that. They've sort of got 30%

(40:26):
inflation at the moment, but they've liberalized the exchange
rate. They've recognized that they
need to get on top of the theft of oil, get people investing
back in the oil industry there. So everyone always thinks I'm
crazy investing in Nigeria and going there frequently, but it's
actually one of the places that I'm most excited and bullish
about. It's got a certain energy and
there's a huge entrepreneurial culture and actually quite enjoy

(40:49):
going to Lagos. You know, it can go either way.
There are places where you go into hyperinflation and Malawi
is an example of that. Recently, you know, small, very
poor country down to the South, the West of Tanzania.
But there were a few interestingbusinesses there that I did look
at. I never ended up investing but.

(41:10):
Uranium restart project out thatway.
Yeah, there's a few Aussie company executive there as well,
I think there's. Sovereign metals, yeah.
Yeah, I sort of heard mixed things about uranium while we're
on the topic. Yeah, because of national
security concerns. You know, the CIA doesn't want
anyone taking uranium from Malawi out to the Western ports.

(41:35):
They want it to come through, you know, say, Kenya, where they
have more influence. Yeah, there's all these factors
that you have to take into consideration when you're
looking at resources in Africa. Things are distributed and
landlocked countries, and, you know, the product has to
traverse a lot of other countries before it actually
gets out to the ocean and gets shipped off.

(41:55):
So that was interesting, but we went off on a tangent there a
bit. So what I was saying is Malawi
was it's sort of gone into hyperinflation, but the stock
market's actually done very wellbecause there's a lot of people
that will go into shares as a way of trying to preserve their
wealth, if that makes sense. And the same in Zimbabwe, you
know, if you own a productive hard asset with your paper

(42:18):
money, it tends to hold its value.
And I think there's been a little bit of that phenomenon
going on in a place like Malawi also in Zambia to some extent,
and obviously Zimbabwe since wayback.
You know, you buy land or you can buy a listed company that
owns land, and that's going to serve as an inflation hedge to

(42:38):
some degree. You never heard much good about
Burkina Far, so some wonderful gold mines there.
But yeah, so the the old Sahel region, for whatever reason,
seems to be very fragile. Obviously there's there's
problems with, you know, just the the quality of agricultural
land there. They're not being able to
support populations and, you know, desertification.

(43:01):
And I guess that's given rise tothese sort of strong men, rulers
that rise up and promise that they're gonna fix everything for
people and they gain popularity for a while while they get given
a few years to deliver the goods.
And then they never end up doingso.
So it's not a country that I've visited or I'm particularly

(43:22):
familiar with, but I think between a gold mine, you know,
with two grams a ton in Ghana and one with 20 grams a ton in
Burkina Faso, you're probably still gonna go for the one in
Ghana just because of the political risks.
That's. The seems to be the pattern.
Seems to be the pattern, doesn'tit?
Yeah, well, that's the big take away.

(43:44):
Just coming to understand your approach.
Every return has got a degree ofrisk you're willing to accept to
try and get that return. Yeah, you've either got
geological risk or you've got green type, red type and that
sort of risk. And for me, when I invest, I'm
basically my mandate is to try and buy companies that I think

(44:07):
can double their sales and profits in five years and then
buy them at valuations I think are low enough that they can
also double. So if I get both of those things
right with a stock, then it's got the potential to go Forex in
five years. Now I'm obviously not going to
get that with everyone, but if Iget enough of them and I don't
have too many disasters, then weshould be able to deliver on our

(44:30):
target, which is to sort of double people's money every five
years. So that's what, 14.7% compound
or something like that. And we're actually on target.
We've been running the fund for between 4 1/2 and five years
now. And up until the end of April,
we were compounding at 15.2%. That's in U.S. dollar terms
after all expenses. And we've just had a huge month

(44:54):
in May, I think the fund was up about 8%.
So we've actually vaulted well above that rate of compound
return that we need to keep our fund on target to meet what we
indicated investors should expect if things all go right.
But that's basically my hurdle. I'm looking for at least 15% of

(45:14):
return on investment in hard currency for anything that I
invest in. And to generate a hard currency
return of 15%, you typically youneed to earn several percentage
points above that in local currency terms because there is
the tendency for these currencies in frontier markets
to depreciate quite significantly as time goes by.

(45:35):
But even then, yeah, you can't put them all in the same bucket.
There are countries that are better governed and have much
lower inflation rates and currencies that tend to be a bit
stronger. So in Tanzania, inflation's
never been above 5% of the time I've been living there.
Kenya has some debt issues. The government there is pretty
indebted. But the inflation rate there has

(45:57):
also never spiraled out of control all the way it has in
places like Malawi and Nigeria. So when you're investing in
mining stocks, probably you wanta slightly higher return than
15% just because there's extra risks.
I mean, I'm buying big, well known companies that are
dominant in their industries in these markets.

(46:17):
So typically I'll own the biggest beer company, the
biggest mobile phone company, the biggest bank, as long as
evaluations are right. Like I'm not just buying those
things blindly. I'm just buying them when I
think everything stacks up. But it's far less likely for an
African frontier government to come in and try and meddle in

(46:39):
the affairs of say, Tanzania Breweries, which controls 75% of
the beer industry in Tanzania. Whereas if you're a foreign
company operating a gold mine, then you know you've got a bit
of a target painted on your backin some respects.
I don't know what your audience is looking for with their mining
investment returns, but if it were me, I think I'd be looking
for somewhere in the 20 to 30% range for a hurdle, which is not

(47:01):
easy. But risks are everywhere, even
in developed markets nowadays, so maybe they've come more
towards my end of the spectrum. Maybe they have.
That's the way I look at it. Really appreciate that.
Thanks for coming on. No worries.
All right mate, that was fantastic.
I hope the money miners enjoyed that one as much as I did.
A big thank you to Mineral Mining Services, grounded sand,

(47:22):
big ground support, K drill and cross boundary energy now.
Remember, I'm an idiot. JD is an idiot.
If you thought any of this was anything other than
entertainment, you're an idiot and you need to read out a
disclaimer.

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