The Art of Commodity Investing (Taylor McKenna of Kopernik)

Today we’re sharing our conversation with Taylor McKenna of Kopernik Global Investors.

We’ve long wanted to chat with Kopernik, given their strong value investing orientation, the fantastic research papers they’ve shared and their eclectic portfolio.

And our conversation didn’t disappoint. Taylor shared the Kopernik philosophy, before expanding on why they like platinum group metals, gold and lithium, as well as thoughts on copper and uranium equities, amongst many topics.

This interview was recorded on 30 May 2025

.……………

TIMESTAMPS

(00:00) Preview

(01:00) Introduction

(03:35) Kopernik's Investment Strategy

(05:04) Understanding Cyclical Markets

(06:16) Valuation Metrics in Mining

(08:06) Platinum and Palladium Market

(11:16) Navigating Geopolitics

(17:30) Impala vs Zimplats

(20:58) Gold as a Long-Term Investment

(26:12) Opportunities in Gold Mining

(27:49) Newmont's Strategic Moves

(31:18) Investment Strategies in Small Companies

(39:34) Uranium Market

(41:30) Lithium Market

(48:08) Navigating Political Risks in Mining

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Episode Transcript

(00:00):
Miters make 80% of their money 20% of the time.
You didn't want to make sure your mine life is around long
enough to benefit from that 20% if it comes in 10 years time.
Gold's been money for thousands and thousands of years, and we
think it likely will be going forward.
It doesn't lose value like a dollar does over time.
It's incredibly hard to build a mine and pull this out of the

(00:21):
ground. Paper money eventually returns
to its intrinsic value 0. Patient capital is a blessing.
Prices have gone from $5000 a tonne to $75,000 a tonne so.
I love the strategy of buying out of favour commodities when
they're below incentive price. It's very simple commodity
investing when you think of it like that.
Mate, we've got a wicked chat toshare.

(00:41):
How's your week? Catch me off guard, mate.
I'm super excited to to share this conversation with
Kaepernick. They're they're a group that
I've wanted to speak with for for quite some time.
They've done some wicked research in into the mining
space and they're super, super value oriented guys.
I think if anyone writes a paperabout a sector 6, five years

(01:03):
before it gets hot and you know,they love trolling around for,
for trash, unloved stuff and, and they're patient.
Yeah, they're patient. And eventually it sort of comes
good. So in that in that case, I'm
referencing uranium. They they started writing about
this 20/17/18. They have been sort of frothing
at the beat about platinum in recent times.
They've got some punchy, punchy,punchy comments when it comes to

(01:26):
to gold and yeah, Fiat currencies for for that matter
as well. And yeah, whilst they might call
themselves a, a small fund, that's very, very much by US
standards, because these guys are.
Measly 6 billion. US so these guys are a a
behemoth by the standards of thethe groups and the investors
that we speak with mate. And yeah, they their, their

(01:51):
views on why mining companies are undervalued is sort of music
to the ears of us and I think toa lot of our listeners.
So I reckon this is a a ripping chat that that all the folks out
there are going to really enjoy and and take a few Nuggets from
mate. 11 big take away reflecting on this conversation,
mate. And and frankly, it's a style of
investing just resonates with the both of us.

(02:12):
And that's that's value investing.
Like at its core, that outlook that Copernic lives by it can't
compromise on value. At least that's that's how I
like to to think and reflect. Yeah, Yeah, I think you're right
mate. And if you're if you're thinking
about building mines as well, that same philosophy applies and
especially when it comes to energy.
That, JD is where Cross BoundaryEnergy comes in.

(02:34):
These guys finance, build and operate renewable energy
systems, solar, wind, battery for mines across Africa and
Australia. Yeah.
And I think it's super importantfor this to cut home.
It's not just the ESG sort of fluff or whatever you might sort
of call it. We're talking about real cash
savings, real performance and long term thinking.

(02:55):
You know, these operations that these guys put in place, the
power systems are designed to save you dollars per tonne.
Not just your emissions mate, It's it's it's if your site has
like a 10 year my life and you're and you're still running
Gen. sets, you're leaving value on the table.
We care about value. Cross boundary energy.
They'll fund and deliver the renewable system off balance

(03:17):
sheet and you only pay for the power you use.
That's it mate, if you value aligned like Taylor like
ourselves here, if you've got a project in the works or if
you've got a project running right now, get in touch with Tim
Taylor details in the show notes.
Tell them money of mine sent youand thanks a lot to cross
boundary energy. We're value investors and that's
first and foremost. So we invest in usually equity

(03:39):
securities around the globe. We're bottom up fundamental
analysts first and a core of tenants of our company are
certainly that we are committed to remaining small.
This we we want to be nimble. We want to be able to invest in
in some of these small and medium cap businesses that offer
a lot of value. We also view the market as

(04:01):
inherently inefficient and we like to take advantage of these
inefficiency and having a globalopportunity set really allows us
to do this. I'll also mention that we have
industry tailored valuation metrics.
I know we're going to get into some of that when we talk about
mining for sure, but we think this is a a big advantage for us

(04:23):
as well. So those are some of the big,
big picture tenants of, of of what we do here.
The the point on being small is quite interesting.
I think a small fund manager in the US is a pretty substantial
manager down here in in Australia.
If we if we expand on your sort of tenants there.
The one of the reasons I sort ofcottoned on to the work you guys

(04:45):
did was these white papers you guys shared.
There was a couple around miningsort of spaced out over a four
or five year period as well as some on optionality.
I'd love for you to sort of talkto to some of those to help us
sort of understand a bit better the the way you sort of view
cycles in in markets. Sure.
Well, cyclicality, volatility and this is another aspect of

(05:09):
our investment mandate. We, we view this as opportunity,
right. So cyclical businesses can offer
a lot of value when the cycle isdown.
And as we know mining goes through that a lot, right.
So there there's, there's usually opportunities in various
parts of of the mining sector. And getting to the, the, the
mining white paper, what's interesting to us is that most

(05:32):
in the industry, and this is across most industries, most
sectors I should say, use NPV orDCFS to value securities, right?
And we think that that has worked well for some investors
for a long time, but due to central bank manipulation, due

(05:53):
to being a slave of the inputs, we think that they have less
appeal now and certainly likely less appeal going forward.
Now this is particularly true with natural resource companies,
right? We, we think that actually most
in this in the industry have hadit flipped upside down when when
valuing these. And there's a few key reasons
why. First, I'm happy to go into

(06:16):
them. The, the first one is that when
you think about a mine, right, and let, let's use platinum as
an example. If you're gonna, if you have an
actual mine and you have a 10 year mine life and platinum is
undervalued in, in, in your analysis and you start and
you're mining your platinum now and you have 10 years to go,
right. That, that on an NPV or DCF that

(06:37):
is preferred to another company,Company B, we'll call them, that
has a platinum deposit that willbe developed in five years, but
has a 20 year mine life, right? So we think platinum's
undervalued, but the DCF, the NPV will prefer a, a company
that's bringing it out of the ground now in this undervalued
market, right? And Rick Rule has a famous

(06:59):
saying that he says the worst thing he he likes, the worst
thing he wants a miner to do is just to pull stuff out of the
ground. When, when, when the metal's
cheap and and DCF tend to rewardthose type of investments.
The other thing that's interesting, back to the
cyclicality and volatility, but 80% generally of of miners make
80% of their money 20% of the time.

(07:21):
So again, if you're off with your timing, the whole model can
be misconstructed. And then the last point I'll
make here, which we think is, isvery, very important is DCFS by
nature factor in time value of money and actual natural
resources over thousands of years have actually appreciated

(07:43):
in, in dollar terms or in Fiat currency terms, right?
So if you look at ADCF model, when you're looking at a
platinum minor over the course of the 10 years, generally that
platinum price is coming down, right?
We we think the opposite. The opposite is true, and
history has been a guide for that.
There's a lot there. And I, I, I'd love to expand on
your point on, on, on optionality, OK, like because in

(08:08):
a lot of ways then the dynamics for a mine with a much longer
life also benefit a lot more from the optionality that comes
from the cycles. If you're making money in in 80%
of your profit in 20% of the time while you you didn't want
to make sure your mine life is around long enough to benefit
from that 20% if it comes in 10 years time.

(08:30):
Exactly. And that's how I think that
we'll talk about uranium. We don't know exactly when again
using platinum as the example, the price will rise but it but
it will be it's below incentive price supplies coming out of the
market right now, right. And we want companies that have
these long mine lives that will benefit when that actually
happens. So how do you go about the sort

(08:52):
of macro component like you justsaid, you don't know, it's very
hard to predict when these commodities actually move.
Will you guys do do the work on building up a sort of rough
global demand supply balance to to see where we're at to see to
give you guys a bit of an indication of when that might
happen? Sure.
I mean, I mean we'll look at supply and demand and maybe

(09:14):
we'll switch gears and use uranium as an example, right.
And when we one of the key tenants that we look at is the
incentive price. And by incentive price we mean
what price does it take for a new mine to be built?
And so you have to make money onpulling it out of the ground,
but you also have to make a return on your capital, right.

(09:34):
So what price will incentivize anew mine construction or I
should say a lot of new mine construction that makes a
meaningful dent in the supply picture?
When we were talking about uranium, we're looking anywhere
from 70 to $80 per pound. So when, when uranium was in the
mid 20s, we really liked it, right, Because we, we, we knew

(09:54):
that over time commodities, metals tend to approach their
incentive price. And while we were very early
with uranium, about 7 or 8 yearsearly, the, the, the gains even
with waiting were, were quite astronomical.
Some of the Iranian companies, especially the smaller ones
went, went up over 10 times, right.

(10:16):
So we like buying in, in those, those environments.
And again, we don't know exactlywhen the cycle will change, but
the supply demand signifies thatit that it will with platinum
right now it's in deficits, it'swell below the incentive price.
There's there's actual supply leaving the market.
So again, the timing is is uncertain, but I would have.

(10:38):
But as value investors we're, wecurrently we certainly have the
advantage of being much buying much closer to the bottom than
than than perhaps other investors.
So we think that the downside isvery minimal now.
And if it if it goes much lower,some of the largest producers
like Anglo American Platinum nowcalled Valterra or Impala will

(11:00):
actually act to curtail supply even more and the supply
deficits will grow. So we think the downside's
minimum with with a lot of potential optionality as you set
from here. With the supply curtailment of
some of those substantial producers, how do you think
about the, the softer issues in relation to that?
Because a lot of those producers, they're produced in

(11:21):
South Africa and there's, it's, it's not as simple as if the
mines aren't making money, they stop production.
In fact, they'll endure, you know, negative cash flow for a
very, very long time because of the huge employment kind of, you
know, requirements that occur with with with operating in that
area. That's a very good point.
And some of the supply that we've seen come out is actually

(11:41):
in the US at the Stillwater operation owned by Sabania.
But what, what they can do in South Africa is they can defer
expansions or they can defer newshaft build.
So as a shaft is drying up, they'll defer building another
one, right? And that's, that's, that's what

(12:02):
they're doing. So supply isn't necessarily
leaving the market yet in South Africa, but they're deferring
expansions and they're certainlygoing after the lowest cost
metal that they have right now. But you also bring up another
important point and it's goes back to our our analysis.
When we're investing in these companies, South Africa for

(12:22):
sure, we would need a much larger margin of safety to
invest in these miners in South Africa than we would say in your
home country of Australia. So if we're if we're looking at
a gold miner, let's just use that.
There's a lot of gold miners in Australia.
There's no platinum. Ones.
There's no platinum ones. Unfortunately, exactly.
That's that's that's why I switched to gold for for this

(12:43):
example, perhaps in Australia wewe might need a 30% discount
right to, to to get excited. But in in South Africa, we'll
need a 60 or 70% discount, yeah.To to sort of flesh out the
argument in greater detail if you're on the Barry side of the
PGM trade. And I think we're we're kind of
family in in your camp here, Taylor.
But the the bears to this argument would talk to the the

(13:07):
the fading demand narrative. So the rise of electric
vehicles, the the sort of shedding or the waiting, like
ultimately the amount of platinum or Palladium needed in
a converter. How do you sort of respond to to
those arguments or think about them?

(13:28):
Well, we one, one way to think about it is that's why we're,
that's why the, the prices are where they are, right.
So that's, that's exciting for us.
But on some of those for sure with Palladium especially 80%
of, of Palladium demand is, is, is for what what you're
describing that and the risk are, are are valid there, right.

(13:51):
And then on platinum, it's only about 25% of the demand and the
other 75% of platinum continues to grow.
So we certainly when we're comparing the two, we would, we
would likely like platinum a lotmore, but things can swing
wildly, right? Palladium 2 1/2 years ago was
over $3000 an ounce. You know, perhaps in the next

(14:12):
run, again we we don't forecast perhaps in the next run that's
platinum that goes to 3000 and and Palladium stays, stays
lower, but you have the same benefit.
So the future is certainly unknown.
The other thing I'll point out is that it seems likely that EVs
will continue to take share, butthat could be pushed out longer.
That looks like it is the EV growth slowed considerably last

(14:34):
year. Personally, I actually drive a
plug in hybrid. I I really like it.
I think it's a happy medium between the two.
And what's really beneficial forPGMS there is they, they
actually have higher PGM loadingthan internal combustion
engines. So if hybrids continue to take
share, which they'd have the last few years, that's that's
positive and certainly not priced in into the market.

(14:56):
It seems at current prices everyone is assuming that EVs
take all market share within thenext few years and we we think
that's unlikely. And and how do you think about
the the precious component of Platinum?
Do you put much stock in that? Great point.
And I'm, I'm, I'm glad you brought that up.
Yes, we do. And it's, it's interesting that

(15:16):
you've probably heard this, thatCostco started selling gold
about a year and a half ago herein the US and, and they ran out
of it quickly. Then they, then they'd restock
it and then now they move to selling platinum, right?
So it certainly has a lot of thecharacteristics and, and
Palladium does too of, of, of gold.
So we certainly think about it as, as a way that investors can

(15:38):
invest in, in, in something that's precious and long
lasting. So personally, I, I own physical
platinum at these prices, the long term ratio to gold is 1 to
1 / 50 years. We're currently 1/3 of the price
of gold, right? So you're seeing, you're seeing
it being sold at Costco, you're seeing jewelry demand grow
considerably in Asia this year because it's at such a discount

(16:00):
to gold. You're also seeing the Russian
central bank buying physical platinum.
So it has a lot of the same characteristics as gold and
historically as traded on par, on par with it.
So it we we certainly think thatthat demand continues to grow
over the long run that investment demand.
And and when you talk from, fromCopernic's position, given the

(16:22):
geopolitical risks in the PGM space, will you like, I know
you've invested in the likes of Impala as you mentioned and
Amplatz of Alterra. Now will you guys just play the
the ATF, the metal physical at apoint in time or will you focus
on the equities? So we, we, we think about it as
what, what, what has more upside, what's the opportunity

(16:42):
set right? And if, if prices were go.
So we, we think that from an incentive price perspective,
$2000 is what's needed for, for PGMS for major new mine
construction. There's, there's one mine being
constructed right now, but even when that's at full capacity,
that's only going to be about 5%of the market and you'll have
some come off. So it's, it's, it's likely that,

(17:04):
that, that we're flat. So $2000 is really what it, what
these companies need to materially increase production.
And that's a double from here, right?
But if prices go halfway there to say, let's say 1500, these
miners, Impala Volterra, they, they have five to seven times up
upside in, in, in that environment.

(17:25):
So prices don't have to go to incentive price and we have a
lot of optionality. So right now we see a lot more
upside in in the miners for sure.
I don't have a crack at pitchinga different one to you.
And yeah, I want to know why youdon't own this, right?
And disclosure, I don't, I don'town this.
So I'm pitching this and I don'town it, by the way.
So I don't know why I'm pitchingit.
But if, if so, Zimplats is a listed like ASX ticker, 87%

(17:53):
owned by Impala. The remaining 13% supposedly
kind of quoted on, on the ASX, but it's got tremendously kind
of low, low float. There's a few big shareholders
that don't really change there. However, their operations in
Zimbabwe are amongst the lowest cost mines of Impala and Impala
needs the cash from those operations upstream.
So you can kind of bank on whatever free cash flow that

(18:15):
comes out of that being paid as a dividend.
Why not own Zimplats instead of Impala?
Well, we, we do via Impala as you said.
But when you talk to Impala and you ask them about Zimplats,
they, they say exactly what you just said.
If we could build more capacity in Zimbabwe, we would.

(18:37):
They really like the workforce there.
They actually like the, the situation geopolitical.
Also, what's really interesting about Zimbabwe is it's all, it's
all green energy there, right. So from an ESG perspective, as
they're trying to hit these mandates, it's, it's very
positive. So they, they love Zimbabwe from
a mining, mining perspective. And if they could grow there,

(18:58):
they could. We'll have, we'd have to take a
look at it. Of course, we we do value it
because we own it. We own Impala.
But I'm not sure to your point on, on, on liquidity, if we
could have a meaningful positionor not.
Yeah. Liquidity is is awful.
Yeah, but but it's certainly a great mind.

(19:19):
Yeah, yeah. One of the reasons the Zimplatts
operations lower cost than Impala's platinum mines in South
Africa, they're not as deep, they're only about 300 meters
deep versus 1000 meters deep like is typical in South Africa.
But both of these still need ground support JD, which means
it's time for Derek Herds and the ground support minute of the
week. How would you explain split sets

(19:41):
for a four year old? A lot of people haven't been
exposed to ground sport, so taking him.
Yeah, you can't think of. No idea.
A split set. It's a fairly simple product.
Or you know, friction bolt, as we call it in ground sport.
So it's basically what we call hot roll coil steel.
So it's flat steel. We buy in a coil and we roll it

(20:02):
through the machine and we make a tube.
We take the flat steel and we roll it into a tube, But it's
not quite a tube. It comes out like AC.
So we make it into AC and we cutit to length.
And we Weld a ring, so we have awire ring that gets welded on
the end and then goes off to be galvanized.
So we have molten zinc. We dip this 2.4m bolt in, the

(20:23):
molten zinc comes out all nice and shiny.
We pack it up, send it off to the customer.
So that's our friction bolt in afour year old.
And it's funny though because it's a simple product, but
behind that is actually there's a lot of complexity and
manufacturing knowledge. There's obviously that machine.
I was referring to the welding because the world strength has

(20:43):
to match the tube strength. There's the performance of the
product has to be right in termsof grade.
There's pull testing. Let's talk about.
So there's there's quite some subtleties that go behind the
product as well that, you know, I could talk all day about if
you wanted to. Thanks Sandy.
Grant support. Why don't we talk about gold
next? I reckon you guys have that sort
of you're of the view that gold is money and you speak to it in

(21:08):
in fascinating detail and some of your presentations and I've
heard Dave Ivan speak about it too at at length.
What what is the the capanning view of gold to start?
Gold spent money for thousands and thousands of years and we
think it likely will continue tobe or or or or will be going
forward. And there's some key

(21:29):
characteristics why we why we think that it's incredibly
scarce, right? It's owned by most central banks
around the world and that's, that's historically been the
case. It doesn't lose value like like
a dollar or, or like a euro doesover time, right?
It's incredibly hard to build a mine and pull this out of the

(21:51):
ground. So supply is pretty supply grows
1 to 2% every year and that's been the case for 100 years.
And so there's a lot of characteristics that we that we
think about it from a money perspective.
And it it's, you know, actually for most of recent human
history, and they're certainly not the last, call it 55 years,

(22:11):
we've actually been on a gold standard, right?
So it's not that long ago there for, for a longer period of
time. Even in the United States, you
know, over its history, it was agold standard.
People seem to forget that, right?
So we, we don't make the argument that we're going back
there, but the market can take the price there itself.
And actually when we, when we look at going back to say a 25%

(22:36):
backing of, of, of the currency,that's one scenario that we use
that, that, that was what was inplace since 1944 to 1971.
So the market could possibly could do that itself.
It did in the 1970s and 1980s, actually, the, the spot price
was above the money price of at,at 100% backing, which was
interesting for a short period of time.

(22:58):
So, you know, as, as central banks continue to print money,
as debt continues, continues to grow around the world.
I mean, it's, it's, it's ironic,maybe not necessarily funny, but
for all the talk about the US debt being under control or
getting under control through, through DOGE and, and some of
the policies, I mean, they've, they've basically thrown in the
towel, it sounds like, right. So we, you know, as debt

(23:23):
continues to, to go, they're going to have to print, print
their way out of it. And and and Gold is a store of
value and it has has been for a long time.
You've got this punchy line in one of the presentations.
Paper money eventually returns to its intrinsic value 0, which
is a bit kind of ominous. But factoring that into what you
said earlier about how you valuethese, these mining companies,

(23:44):
how do you think about the, the prices or perhaps a set of
prices that you you flash through these models that you
do? We, we think about it in, in
scenarios. So we like to do scenario
analysis and we find this very useful in all of our industries,
right. So we, we, we tend to look at
multiple metrics when we're, when we're valuing companies and
that's certainly the case when we're value mining companies.

(24:05):
And some of the key prices we would, we would use, we would
use the incentive price of of around $2000.
That looks like it's possibly going to increase soon.
But if you look at one of the reasons why we're hesitant to
increase that incentive price even with all the CapEx
escalation around the world the last few years is most mining
companies still use under that when they're when they're

(24:28):
listing reserves and research resources from an economic
perspective. So we're watching that, that
would be that. So that's one key input.
One scenario in our model would be incentive price of $2000.
We would also use a money scenario if we happen to go back
or the market takes us to a 25% backing of of of the gold price
that that's a scenario. We also look at spot price.

(24:50):
What if the market's actually correct today?
How do we do? And as you're probably aware,
even with cost escalations all in sustaining costs going up the
way right now, the, the difference between all in
sustaining costs and the market price is, is the greatest
September been. So the gold miners should be
doing really, really well right now.
And, and they are and most of them assuming gold prices stay,

(25:13):
stay where they are or even movelower, have a lot of value at at
the spot price. So we also really, really like
them for that perspective. We also look at a bear case.
We look at the, the a scenario where if the gold prices reduce
or falls dramatically, how do wedo in that scenario too.
So those are the key scenarios. And if we look at like how, how

(25:35):
quickly the gold prices showed up in, in recent months and you,
you look at the, the various buyers in the market, you've
clearly got the biggest one being central banks.
Central banks across the world have been buying gold to the, to
the hilt. You know, whether it's China or
Russia or whoever in, you know, really since the, the Russian
and Ukraine war kind of started.But if you look beyond that at

(25:59):
the the Atfs and the other sources of gold buying about
that because they they've not really been massive and that's
sort of reflected in the the equities they have appreciated,
but not to the same extent. Perhaps some more bullish gold
investors might have thought, How do you think about the sort
of broadness of the rally in gold?
We think that's opportunity going forward.

(26:21):
I mean, unfortunately the West, the retail investors you know,
tend to be late to it, right. So we, we would think that
that's, that's opportunity goingforward when it, when it comes
to the, the miners, we, we thinkthat the mining companies in
general overall in the gold mining space are much, are much
better managed now than they were 10 or 15 years ago.

(26:44):
And we think that there's a lot of investor ache and they were
burned by many management teams throughout the sector.
We think that's largely cleaned up, especially at the companies
that we own. I'm happy to go in, go into the
reasons why, but I, I think thatinvestors are skeptical if
that's the case or not. And I think they, what the gold

(27:04):
companies specifically should dois they should keep earning
money at, at, at these levels and buying back stock and
showcasing that that, you know, this is for real.
They're not going to go out and and make a bad capital
allocation decisions and and they're, they're not going to
lever up right now, right, because a downturn always comes.
And so they're gonna can, if they have that excess cash, you

(27:28):
know, they can, they can reinvest or that they can pay
dividends. But I, I think that that will
that sentiment will change over time as as these companies keep
doing well, just wait there's. Still, there's still duration
left in this gold market. You never know, they might.
They might let you down eventually.
You know, they, they might let's, let's use Newmont as as

(27:49):
an example. You know, Tom Palmer at, at
Newmont, I mean we think he's a very good CEO.
He's got an operational background.
He's a, he's got a lot of incentives, long term incentives
in his comp, which we really like.
They've been after by active buyers of the stock over the
last year and a half very opportunistically.

(28:09):
They they purchased New Crest. New Crest was our largest
holding and we know it was an Australian company.
We thought that was a great company, a lot of assets very
undervalued. And while we were scorned or you
know, upset that Newmont took itat the price they did, it was a
great deal for Newmont and he hereally spearheaded that.
So we, we think that Newmont hasincreased its value a lot over

(28:33):
the last few years through a couple of key acquisitions,
Goldcorp and then New Crest. And what I really, really like
about the team at, at Newmont now I went on a tour.
So they're, they're mine in Mexico called Penasquito last
year and this was at the, this is in February of 2024.
And if you pull up the charts, the, the, the gold miners were

(28:53):
pretty much at their lows. At least Newmont was a private
since 2000, early 16. And everyone was really, really
upset. It was, it was not a very well
attended. Let's just say there were five
investors on this, on this mine tour of the biggest gold mining
company in the world. And I think they were expecting
a lot more. But Tom Palmer and the whole

(29:14):
C-Suite was there. And it was interesting.
We were doing a tour of, of the mine and we had, we were in a
conference room, right? And they had all the pictures up
of what they were going to do tothis.
They're, they're comparing it totheir Newmont mines.
And they were also making sure, sorry, they were also making
sure that everything was operating well.

(29:35):
But what I loved about it was asthe mining manager was
describing, Tom Palmer actually took over, right?
He explained in detail for one hour all details of the
operation, what they were going to do to increase efficiency at
that mine, right. So he is dialed in operation
unlike any big mining CEO I've I've seen before.
So I was, I was very impressed with them and we think that

(29:59):
they're going to keep going welland they they did.
A, you know, divestment program on the back of the new cresting
you sort of say that favorably in terms of allocating capital,
understanding the assets that will meet the grade for them
it's. It's always interesting and you,
you can make a lot of money. We, we, we joke about this
internally, Elisa, our Co CIO and Dave Iben, our CIO.

(30:23):
They, they both know mining verywell too.
You can make a lot of money buying from the majors, right?
The, the one Dean certainly have.
There's examples of companies inCanada that have that bought
from Barrick in Newmont coming out of the, you know, 20/14/15
when they were 4 sellers due to taking on so much debt.
So you can certainly buy great minds from, from the big guys.

(30:45):
In this case, Newmont was almostgot so big that selling some of
these smaller assets made sense.Even though there's a company in
Australia which got away from us, but I really liked it,
talked a lot to their management, great land gold.
I think that they've got, you know, great asset from from
Newmont and they'll they'll likely do very, very well.

(31:07):
So in a perfect world they wouldn't have sold them.
But I understand from Newmont's perspective that they were just
almost too big and and they had to focus on their key assets.
If if you look down the the market capitalizations of these
Goldies, how, how far down will you play?
I know you guys in the past havementioned quite smaller
companies, but obviously you dial up the the margin of safety

(31:29):
that you need. Exactly.
We'll go down to very small companies that have undeveloped
deposits around the globe. And to your point, while the
margin of safety is, is much higher, So if we're investing in
Newmont, we need about a 30% margin of safety, right.
But if we're going to invest in one of these undeveloped
companies, we need a 70 to 80% margin of safety before we get

(31:53):
interested. But even when we apply that we
see multiples upside on some of these, right.
You know, we can get we can get more into it.
But one of them is Seabridge, which is in Canada.
They own a large undeveloped deposit called KSM copper, gold
or gold, copper depending upon how you look at it.
And this is a massive, massive deposit, right.

(32:16):
And if we're going to get to some of the projections that
some out there on, on copper, oncopper growth over the next 10
or 15 years, these deposits willhave to be built.
This is one of the largest undeveloped deposits in the
world. So we we really like it.
We've just got a great management team.
The other key metric I'll I'll point out that makes this again

(32:37):
a bit different. We look at multiple metrics.
So when we're grading managementteams, one of the, one of the
metrics we like to look at is reserves and resources per
share. How are they trending over time?
So many of these small undeveloped companies just
dilute and dilute, dilute to paythemselves and you they, they
really destroy a lot of value. So there's so many cases of
that. And Seabridge is, is almost the

(33:00):
opposite. The, the management team is
invested alongside us. They, they think about it as a
business like, like we do, they look at reserves per share, oz
per share. So when they're making capital
allocation decisions, they're, they're, they're thinking,
they're thinking about it from that perspective.
And we think that that's, that'svery important.
Again, Newmont, Tom Palmer in his career, he's grown reserves

(33:23):
and oz per share. It's not the only metric to look
at, but it is a key indicator that that we like to focus on
when when we're judging these teams and, and Seabridge has has
done a great job with that. With these sort of smaller
companies as well, have you got a strong view on the ones that
need to finance a build, whetherthey do that predominantly
through equity, debt, equity kind of mixed?

(33:46):
Do you have strong views on the use of debt in these kind of
single or smaller companies? It's hard to say and it depends
a lot on the situation, right. So in our in our model, we're
talking about Seabridge and they're pretty outspoken about
this. They expect to form a joint
venture agreement with somebody,right.
So that we factor that in into our model.

(34:06):
So net we would think that the company ends up retaining around
30% of the mine going forward and some of the buyout that they
that the other miner of the large miner would where the buy
in I should say would contributeto Seabridge's portion
proportion of the of the CapEx, right.
So that's one way we would thinkabout it with, with, with, with
a small company. But if you're looking at an

(34:28):
Artemis, which which we've ownedin the past that has done really
well and built the Blackwater mine in Canada.
They they did it very, very sensibly.
They made a couple of of key decisions.
They partnered with the great streaming company Wheaton
Precious Metals. So who we have a lot of respect
with as a key, key part of it, it's nice.
One of mine as as you're familiar with has, has

(34:49):
byproducts, right. So in that case, silver was a
perfect percentage of the mine to, to, to stream out to wheat.
And so they're a part of it. They, they did call on debt, but
they didn't take on too much debt and they also financed
some, some of the equity. So we, we think a, a, a healthy
mix in that case makes it makes a lot of sense.
The other key thing that they did and Steven Dean, the CEO of

(35:11):
Artemis is he's done it now a couple of times.
So he's a very successful CEO. He always says Australians are
better minors than North Americans and he is Australian.
So I'll point that out. But and one of the key things
that he described is that in North America, everyone wants to
build a big mine, right? And he's, he's like, why not

(35:33):
finance a starter or a smaller project and use some of the cash
flow to then build in phase two and phase three.
So that's, that's what he's donevery successfully a couple times
in his career in Canada. But the other important thing
that he's done and now you're seeing more companies do it, is
he did fix price contracts for construction.
Now you pay a little more for those upfront, but any cost

(35:56):
escalations that happened for any reason are a lot of that's
formed by the contractor and in an inflationary environment that
proved to be a very smart move on on his part.
So I don't know if that answers your question though.
I know you mentioned your, you think that the copper, sorry,
the gold miners are going to be disciplined with the with the

(36:17):
capital allocation. Do you not get the sense that a
lot of them are pretty hungry for copper assets though?
And is that not a fear that you have that because copper assets
are highly sought after, they might overpay for for them?
Yes, it's a we, we, we go to a conference every year and and
until this year for you know, the last three or four years,

(36:39):
95% of the 90 to 95% of the mining CE OS and CI OS thought
copper would be the best performing medal for the next 5
or 10 years. Now that switched to about 60%
gold this year. So it's funny, even smart people
tend to follow the trend, right,which is always interesting.
But when everyone liked copper, including all the gold mining CE

(37:00):
OS we were, we were a bit skeptical and volatility again
is our friend. So we were actually selling
down. We had a lot of copper exposure
going it going in into that view.
We, we owned I've and home mines.
We owned Turquoise Hill, which was Bopper, Rio Tinto.
Those are two of our largest positions.
We got completely out of them aseveryone got pulled up on copper

(37:20):
and was paying for copper. And, but going back to your
question, it's interesting when you ask that to Mark Bristow,
the CEO of Barrick, who certainly hums that tune that
you're suggesting, he says that,you know, almost going forward
to find a lot of gold, to find big gold mines, they, they have
to be in copper gold porphyries,right?

(37:43):
So he's saying going forward the, you know, the, the, the
large scale gold only deposits have been found and you have to
go for these copper gold porphyries.
So that's one reason he'll say that he's going after it's not
just for the copper. He's saying that that's that's
where the that's where the big gold will be too.
But it is it is a little concerning that all of the major

(38:04):
gold companies want more copper,right That, you know, Newton
Newmont is saying the same thing.
One of the reasons why they theybought new crests for sure.
It's fascinating. I think some.
Of them might be a bit shackled in or there might be sort of
institutional issues if they go down that path given the the GDX
or these these sort of indexes that they're in that require
certain amounts of gold being asa big part of that the revenue

(38:29):
isn't it funny how like. How narrative changes as well,
like you go back, I don't know, 12-12 months and it's like the
narrative is why do we, why do we mine gold?
You know, it's just this bloody metal rock.
We spent all this money, we dig it out, we put it in the thing.
So there was this like the narrative mentality around
wanting to, to have a, a usefulness to your actual
purpose and mining, like as a mining company, we need to add

(38:51):
copper to the mix and then we'reattractive and people can
understand why you would want toown us.
And we fit these ESG criteria instead of fitting the GDX,
right? The narrative changes so fast
all of a sudden. Well, now values sound hard
money. No, it's, it certainly does.
And we like to take advantage ofof that volatility.
So as everyone was not looking for gold and unhappy that

(39:13):
they're mining gold, the gold miners were very inexpensive,
right? And we were buyers of that and,
and selling the copper miners. And that's almost flipped on its
head in the in the past year, right?
So the gold miners have underperformed in some cases,
but not, not all of them, right?And now suddenly the copper
miners are a lot more interesting than they were.
So, you know, we're, we're more interested in, in, in some of
those again. If we, if we switch tack to

(39:35):
another commodity that you mentioned earlier, uranium, you
guys came out with a with a paper on this like you said
seven or eight years ago, I think 2017 or 18, is that
remarkably early? And it was it was fascinating to
say the work you guys did and then subsequently write about it
again in the years later. How do you see uranium here
today after the the sort of tearhigher and then 30 to 40% peel

(39:58):
off while the equities got you know wiped out sort of sixty
7080%? Yeah, but we certainly like it a
lot more than we did when it wasabout $100 a pound.
So as you said, we were, we werebuying in the mid 20s and and
did did quite well as as everyone got excited on it and
and nuclear energy moved, moved to the forefront as as we, we

(40:19):
think it should be right. And now that everything has come
off a little bit, we certainly like them more and we've we've
been adding to you know or re adding them to the portfolio.
So you are seeing more supply coming, but not a huge amount
and the supply demand going out 10 years is very, very
favorable. So we think that prices are

(40:40):
likely to move higher, but we certainly don't like it uranium
as much as we did when it was $25 a pound.
So so you how? Do you filter out what what you
do like and what you don't like?Well, we pay attention of course
to the incentive price, right, for all of these metals.
So you know, where is the metal trading versus the incentive

(41:01):
price. So we like to buy when it's well
below that because we think overtime history has been a guide
that metals or, or commodities move towards their incentive
price. So when oil's in the 30s or in
the 20s, we, we tend to like oilcompanies a lot.
Then when natural gas is, you know, a dollar $1.50, you know,
we, we, we really like it when, when platinum's $1000 and we

(41:24):
think the incentive price is 2000, we, we really like it.
So that's, that's how we filter out ideas.
Lithium is lithium is when we haven't spoken about yet.
And certainly when lithium was 50,000 to $75,000, we, we didn't
show much interest when we thought the incentive price was
materially lower than that. But now with it around 10,000,
it's certainly a lot more interesting.

(41:46):
How do you think? About selling, it's the sort of
question that keeps ringing in the back of my mind.
You, you're so disciplined. Is it you guys sort of sitting
around the room and having to remind each other when, when you
see the the sort of narrative onthe front page of the newspaper,
that's time to go it? Or is it just sort of so
ingrained in each of you? Well, we, we stick to our models
when it comes to this. So, you know, just a

(42:07):
hypothetical example, if our, ifour, you know, using, using a
new Mon as an example, I mean, this isn't, this could be any
company we'll call company A. If our, if our theoretical value
is let's say $100, right? And, and to invest in, in this
company, we require a 40% marginof safety, that would mean that
anything below 60 we would get interested, right.

(42:29):
So if the stock is 30 and it goes to 20, we would all
fundamentals remain intact and our, and our, our value is still
60 risk adjusted value still 60.We'll like it more if it moves
from, you know, 30 closer to 50.And, and we'll, we'll like it a
lot less and we'll be selling out.
So we, so we stick to our modelswhen it comes to selling and,

(42:50):
and also adding. And I think that that's one of
the hallmarks of what Dave and Elisa have been doing for a long
time is we're, we're very active, right?
So even though we we see a lot of upside in in Volterra and
Impala right now, we trim on strength and we add back on
weakness and we're very active with this.
It's a kind of interesting contrast with a lot of value,

(43:13):
real value investors out there. A lot of them sort of sing to
the tune of buying when it's really cheap and then just
holding in perpetuity. So it's quite a marked
difference as I kind of see it, right?
Patient capital is a blessing. Yeah, it it.
It really is. And again, if we were sitting
here 5 or 6 years ago, we had less gold and we had a lot more
copper. So Ivan Home Mines was our

(43:35):
largest position. Turquoise Hill was also a large
position. And you know Ivan Home Mines
where we, you know, we eventually we're completely out
of it, right. Cameco in the uranium space was
once our largest position and itwas and that was brought to to
zero over time as as as the market appreciated and we moved
into natural gas. So again, we're we're very

(43:57):
opportunistic. We take what the market gives us
and in selling as it approaches our value is something that Dave
and Elisa always do. Are there any?
Very. Yeah, cyclical commodities that
we haven't covered today, which are very out of favor that
you're very interested in right now.
Taylor, I mentioned, yeah. Sure.
I mentioned lithium for for a minute.

(44:17):
I think I'll maybe I'll expand on that.
One thing that we do is we, we, we like to travel, right.
So Dave, Elisa, myself, Isabel, who's also a member of the
management team, we get out there and we see these mines all
over the world. So we traveled to Morocco, some
of us have been to Australia, Canada, Alaska, Argentina.
And a couple of summers ago we were in Argentina and we decided

(44:40):
to go to the Lithium triangle, which is on the border of Chile
and Argentina to where where a lot of the lithium is produced.
Some of the highest quality deposits are there in, in, in,
in brines, actually as, as they're called.
We went there when lithium pricewas 50 to 60,000.
We, we didn't think we'd, we'd, you know, see any value anytime
soon. And, but we learned about all

(45:02):
the operations there. We, we learned about how it's,
it's pulled out of the ground inthis liquid form and then it's
evaporated over time and then it's processed and, and turned
into lithium that's used in batteries.
So we got really up to speed on this.
We went to an investment conference and sell to
Argentina, which were the miningcapital of the country and it
was jam packed with people from all over the world.
Lot of excitement about lithium and of course prices have gone

(45:23):
from $5000 a ton to 50 to $75,000 a ton.
So of course everyone in the industry was really excited.
And, you know, Dave, Dave, Isabel and I were on that trip
together and we, you know, I, I certainly left there thinking,
OK, maybe we got a shot in a five years or, or, or, or
something like that. And then 6-9 months later, the
lithium price was, you know, down to 25,000.

(45:44):
And some of the large companies like SQM and Arcadium, you know,
we're down 30 to 40%. And then all of a sudden we were
down below 15,000 and these companies were down 70 to 80%.
So within a year's time, we, we learned a lot about lithium.
We did a huge industry template on it here on the team.
It took a, a lot of months of, of, of work and back and forth

(46:05):
with Dave, Elisa and the entire investment team, but we came up
to speed. We, we came up with the
incentive price that we would use, which is around $15,000.
So we think the industry you need to move to 15 to 20,000 if
some of the growth is going to continue for some of these new
projects like backer pass in the, in the United States, you,
you, you need much higher prices.
And then we invested in some of these companies post that trip.

(46:28):
So lithium is certainly interesting at these prices.
It's in Rio Tinto. They continue to spend money on
lithium. They just just made another
partnership in, in, in Chile. So they certainly like it.
And they we invested in both Arcadium and SQM and of course
Rio came out and bought Arcadiumpretty soon after, afterwards

(46:49):
SQM is the lowest cost producer,some of the best assets.
So we really like that right nowtoo.
That's that's fascinating. And have you sort of ventured
into the the Hard Rock space or the spodumene space or do you
just sort of find those ones a bit high and yet you're happier
in those brine projects? We've certainly looked at a few

(47:09):
companies and now on in the spodumming space for sure.
And of course you know, SQM and even Arcadium did have some
spodumming assets in, in, in Australia and we're certainly
not adverse to continuing to look there.
You know, it's been, it's been fascinating to watch.
One of the reasons, you know, why the lithium price turned

(47:31):
over is just how fast some of these spodumene producers came
on in Australia. I think the market was pretty
shocked that, that, you know, inmost, most cases to build big
mines, I know these aren't in most cases not huge mines.
It takes 15 to 20 years, but this happened in a, you know, in
three to five years, right? So I think some people were were
kind of shocked with how quicklythat turned.

(47:53):
But no, we, we certainly are valuing spajamine producers and
we're looking, we saw a lot moreupside in, in arcadium and in
SQM. And again, we're, we're paying
attention to the risk adjusted value, right.
So and and how did you? Adjust the risks for Argentina
and Chile. I'm quite curious because
nationalism is definitely on theon the rise in in Chile

(48:13):
specifically and the the deals around SQM's ownership change.
How do you think about that? Well, we assumed we were, we
were conservative when we assumed the deal goes through as
being as being disclosed and talked about now where
essentially they give away 50% of their deposit to to Codelco

(48:34):
the the government. So we assume that happens of
course in our model and we assume that happens in a phased
out scenario by by by 20-30. We also include all royalties
they pay a hefty royalty to, to the government as well.
So we of course include that in our model.
But even when you assume all of that and you take a big margin

(48:55):
of safety for being in Chile, there's, there's a lot of value,
right? So that's, that's one way to,
to, to think about it. My, it's interesting to your
point overall, once the, the government in Chile makes a
deal, I mean, they, they have pushed SQM, but to be clear,
SQMS, a permit or concession expired in 20-30, right?

(49:17):
So that, so the government didn't come in and say, give us
50% now they came in and said, we're not going to renew your
concession in 20-30 unless you negotiate with us, which was
their right because that was when their concession always
expired. So they, they just negotiated on
the behalf of themselves when they had the opportunity.
So, and if you talk to, we've asked this question to other big

(49:39):
miners like like like Rio, they like operating there because the
government does negotiate and they make a hard deal, but they
tend to stick with it. It gets tougher in places when
governments try to try to encroach and redo deals all the
time. Those are tougher situations.
But even with all of that said, compared to Australia, like I
mentioned earlier, if we need a 30% discount, Chile may require

(50:02):
a 50 to 60% discount, Argentina would require require 70 to 80%
discount. So things are trending up in
Argentina. Certainly the Lundin's very,
very successful investors over the long term are investing a
lot there. So is BH PS and with their
copper projects in the Baikuna district.
So there's a lot of optimism about Argentina.

(50:22):
Yeah, Rio was very comfortable buying Arcadium and they're they
were pretty, pretty outspoken about it.
But but with that said, we wouldstill require a big discount.
I've enjoyed this. Conversation immensely, Taylor.
Yeah, there's a lot, a lot of takeaways here and and I love
the the strategy of buying out of favor commodities when

(50:45):
they're below incentive price. It's very simple commodity
investing when you think of it like that, yeah.
All right, well, thank you so much for having me.
I really enjoyed this awesome mate.
I was stoked to share that conversation.
I was stoked to have that conversation and I am keen to
hear what the money miners thinkof that one, whether they like
that sort of content. There's a, there's a lot there
that resonated with me, mate. Wrap up a massive thank you to

(51:06):
our wicked partners, Mineral mining services, MMS, grounded
sanded ground support, CRE insurance, K drill, cross
boundary energy. How's your week mate?
I don't even know. Where to go with that?
I. Can RIP another guy I thought.

(51:27):
You wanted to put personal. Stuff in the.
I've always thought that. At the back end, I don't know
why the back end seems to fit well for that, Yeah.