July 8, 2025 • 40 mins
We’ve got the pleasure of sharing a conversation with David Sparks — an investor in the natural resources world with experience at some of the world’s biggest hedge funds, including the famed multi-strat firm Millennium, as well as BBT and Exodus Point.
In this episode, we unpack why investing in mining from a pod shop is often a flawed strategy, how these firms came to dominate the market, and what it actually means when a pod “blows up.”
David also shares his picks for the most impressive management teams in global mining and plenty more along the way.
We hope you enjoy this one as much as we did.
……………
TIMESTAMPS
00:00 Introduction
02:09 David Sparks on MoM
07:55 Being Market Neutral
09:58 Why the model doesn’t work in mining
13:40 The Volatility
16:07 Reflecting on multi strategy funds
19:02 The worst way to invest in mining
23:55 Shorting
27:20 The “lack of risk”
30:40 Access to management
32:00 Deploying capital in an unconstrained world
34:40 Are mining stocks more inefficient?
36:40 Cheap stocks
……………
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PARTNERS
Thank you to the mining services businesses that make thiscontent possible:
· Grounded - Infrastructure for remote mining and civil projects Australia wide | Paul Natoli: pn@groundedgroup.com.au
· Sandvik Ground Support – The only ground support you’ll ever need
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DISCLAIMER
All information in this podcast is for education and entertainment purposes only and is of general nature only. Please ensure you read our full disclaimer.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Do you think those are money markets?
Are. More inefficient.
More inefficient. You know, it's interesting.
These names always just follow what the commodities do, and
then you get periods where that just stops working.
(00:20):
We talk about what it takes to make a good commodity investor
all the time and namely you've got to ride volatility through
the cycle. We know that you've got to be
patient, but there are these bighuge institutions, multi Strat
hedge funds, which by definitiona very short term oriented.
And thankfully today we've got just a guess to to tease out why
(00:42):
multi Strat hedge funds or pod shops are the worst way to
invest in the sector. This is a a super exciting chat
and it's one we actually wanted to to have for quite a while.
I think we're going to to a large extent try and demystify
what is pretty foreign to a lot of the punters around here,
right? So you might hear the words pod
shop, multi Strat firm, you know, these big hedge funds like
(01:05):
Citadel, like Millennium, like .72.
And we're going to speak with David Sparks and he's going to
try and help us answer this question and sort of share
thoughts and share ideas around why they have such a tough time
investing in commodity players, in mining companies, in natural
resource companies because of that vicious commodity cycle
that a lot of the other investors we speak with try and
(01:27):
make a winning from, right? And, and David Sparks is, yeah,
one of the, one of the, the wonderful few people out there
who has worked in one of these institutions.
He's worked at Millennium, but it's not the only the only one
that like he's he's working this, this kind of hedge fund,
more multi Strat model, multi manager model.
Like several times he actually started his career like, you
(01:48):
know, working for a hedge fund for the for the Bass family.
Yeah, famous, famous oil family.And these days he's, yeah, he
works for First New York and he's got a more kind of
discretionary strategy that he runs, but still investing in our
favorite sector being and metalsand mining.
And I think he covers some energy too.
That's right mate, I'm excited to share this conversation.
(02:09):
David Sparks, thank you so much for joining Money of Mine.
With a lot of that, you're willing to have the
conversation. So peeling back the curtain on
the mysterious multi manager hedge fund, world pod shops,
multi Strat funds, they've got avariety of different names, but
they have kind of taken over where capital is, what's moving
markets, where a lot of the flowis.
(02:29):
So we have to talk about it. There's an intersection in
metals and mining. You've worked at multi Strat
hedge funds. You spent three years with
Millennium and that wasn't your only visit in that world, but
you've seen the lot and you're now obviously working prop shop
instead with a lot more discretion.
What is a multi Strat hedge fund?
What is a pod shop? The the rise of the multi Strat
(02:51):
it has been 20 years in the making.
I think a lot of people know thebig names being Millennium
Citadel in 2072 or not, but it'sa grouping of a lot of different
types of strategies. The idea being if we put a lot
of smart people together that run money differently, we can
(03:15):
approach the efficient frontier of returns and offer the best
risk reward to our investors. That's the idea.
And how did you find yourself Dave, in one of these with a
meadows and mining lands? Because we always hear that
meadows and mining is a crediblysmall market and you're in the
States. So you found your way to
(03:36):
investing a bit of money in thisspecific sector for a multi
strap fund? Yes.
So they're always on the lookoutfor talent and you know, their
assets have been growing very steadily for a very long time.
I had been working for a portfolio manager for a wealthy
(03:58):
family for the first seven yearsof my career.
And then he got interest from Millennium and they kind of made
him an offer. And we went over and they throw
a bunch of money at you. You take what you were doing
before and you say, OK, I can dothat there.
And then that's how that whole thing happens.
With the model of these multi Strat funds is it's so different
(04:20):
to what you can be used to anywhere else right?
Like the risk overlay, the way that capital scales in
accordance with performance, butthat model has enabled them to
accrue so much funds under management and now there's such
a force in our markets. But when you're going from a
more discretionary strategy to and then applying it in a multi
Strat world with like how did, how did that, how did that, how
(04:42):
did that pan out? How'd that go?
It is not entirely different from what you know you would do
with a traditional longshore, but you know, there's a lot more
emphasis placed on risk controls.
I mean they have a prescriptive formula that they try to provide
to management teams and that really isn't it.
(05:08):
How to say this, you're kind of fitting, you're fitting A
desired volatility construct into a portfolio.
So the with the technology or consumer or utilities, it's
pretty easy to fit into like what exposures you're taking,
(05:28):
how do you find, how do you define your idiosyncratic risk?
Where it gets trickier, I think to the point of your question
with mining or energy or something with commodity risk is
how do you define what idiosyncratic risk you're taking
and do it in a kind of neutral way?
(05:52):
That's not going to put them at risk, right?
Because I mean, their whole gameis growing assets, generating
fees off those assets. And what they're doing is
putting a lot of leverage on that capital.
So think of it, for every dollarthat they get from their
(06:15):
investors, you know, you're probably putting 3 to $4.00 long
and three to $4.00 short into the marketplace.
So if you're a 10 billion fund, you might have 30 billion long,
30 billion short spread across anumber of teams.
If you lose money, you know, if if a couple of teams start
(06:37):
losing money, that creates a huge problem for that asset base
and and the returns to the investors.
But the idea is like, all right,if I have 20 smart teams and I
can tell them all right, fit into this risk model.
And as long as you stay within the this risk model, which we've
(06:59):
figured out is what's going to keep your volatility down, then
you're smart. You're going to have your alpha
and we're going to be able to generate returns with a ton of
leverage that's going to look amazing to our investors.
The issue with that is the incentive structure of the
management team of a multi manager.
(07:23):
Then you have the incentive structure of like the portfolio
manager and what are they tryingto achieve and your investing
style may not necessarily align with wanting to fit perfectly
into that structure. Where as you can be much more
(07:45):
risk seeking, willing to ride out more volatility in what's
happening with your positions and your theses because of the
leverage employed in the system.Dave, can you just expand on the
neutral component? Yeah.
So there are a number of factorsthat these guys are looking at
and it varies by firm, like how intense the factor models are,
(08:07):
whether it's value or growth or momentum or just beta.
Like some, some firms are very focused on having you like very
factor neutral where your longs and shorts kind of cancel each
other out. So your exposure to the value
(08:27):
factor would be 0 in essence. But if you build a portfolio
where the positions you like thebest you want to take create an
imbalance, then they can either tell you you need to cut the
positions or you start forcing in other positions that you
(08:48):
don't necessarily want in your portfolio just to hedge out some
sort of factor risk. And I think that's where a lot
of people tend to get frustratedwith the system, if they are
frustrated with the system, is that you can spend time forcing
positions that you don't necessarily want in a portfolio,
which can be often diluted to your process, your alpha, your
(09:12):
time. That can be one of the
significant frustrations. The whole model, it's looking to
reward alpha, right? And you as a portfolio manager
will have some insights to express them.
With certain longs and shorts, maybe they get hedged out.
But if you're roughly kind of neutral in some respects, then
that idiosyncratic insight should be rewarded as alpha and
(09:35):
you get remunerated accordingly.Is that kind of a fair
characterization? Yeah, that's basically the idea.
And also your comp at the end ofthe year, you know there'll be a
baseline percentages that you'repaid, but that also scales
generally with most firms based on how well you perform relative
(09:57):
to a risk model. So the model itself is fantastic
for endowments and all these sorts of big institutional
allocators of capital because the risk parameters are so
tightly controlled and all thesesorts of things.
So they can give money to it andthey're happy when the model
works. Sharp ratio, sharp ratio.
(10:18):
But if we look at it from the other lens of financing mining
companies and financing assets to get them built and get them
off the ground, there seems to be a bit of a disconnect because
the duration that needs to go inand the volatility often
inherent in financing mining projects is, you know, it's
hugely volatile. So how do you marry those up and
(10:40):
you sort of sitting in between making no way?
You don't, I think this is it's one of the interesting things,
right? It's like the multi managers are
so large and you're so active inthe market trading that you
generate tons of commissions that you pay to the street,
which means you have world classaccess to management teams.
(11:03):
So you end up getting to know management teams incredibly well
and that is one of the largest benefits of working in a place
like this. However, because of the risk
model, you are forced in largelyinto being a traitor, especially
in a space like ours which is sovolatile that you have to
(11:25):
constantly be monetizing positions.
And if you're talking about financing a mind and taking a
long term view on something or writing something out through a
period of volatility. I mean, I'm thinking about my
own experience in 2015 trying toride out Glencore through
everyone thinking it was going bankrupt at the end of that
(11:48):
year. That is not viewed favorably.
So to your question, very difficult to marry those two
ideas. Management teams get amazing
access to these investors and I think they tend to enjoy
conversations because, you know,there's a lot of talent, there's
(12:09):
a lot of very smart people that work at these places, but they
are not your typical cornerstonelong term shareholders.
Talk me through this Glenn Core period.
Oh, 2015, not a positive time inour markets.
One or two of the trading houseswere going bankrupt.
(12:30):
I think it was Noble groups thatwas having issues.
If I recall, everyone then looked at Glencore and said, oh,
Glencore's got a trading business.
Glencore is going bankrupt. Glencore CDs was blowing out in
the fall of 2015. Ivan's coming to town and this
is great part of working at multi manager.
You have access to Ivan, got to sit down a couple times.
(12:52):
Hey, what is your trading business like?
From my understanding, you move cold from here to there and the
duration is very short. You should not have a financing
problem. That got reiterated a number of
times. OK, Understand this like you're
not actually going to go bankrupt.
Trying to explain that when CVS markets are telling people
(13:16):
otherwise became a difficult discussion to have.
How do you manage that volatility then in a 2015 is the
ultimate kind of bear market thecommodities where everything's
like do you get forced out of a position early or?
I mean, that's what happens. You get forced out.
You really have to shrink, you force on bad hedges.
Yeah, Anything that you shouldn't do or that you
(13:40):
wouldn't want to do. We see, we see this like
justification about volatility in in markets these days when
there's unexplainable volatility, like fingers get
pointed to a pod shop blew up. And yeah, it kind of feels like
an explanation just to just to explain something away.
But it is a real phenomenon too,right?
Like what? Does that mean, Well, think of
(14:02):
it as a kind of like a cascadingfactor, right?
Where there's so much money and a Millennium might have 10 teams
trading 1 sector and .72, I havea couple teams that will have a
number of teams. So you have all this capital
flowing into a sector and especially if the sector is
(14:24):
small, you can get very crowded positions.
If you look at the factors to watch on Bloomberg, if you look
at a 10 year return profile, thebest performing factor is
earnings momentum, which makes alot of sense.
What hedge fund analysts are trained to look for and invest
in are positive earnings revisions and short negative
(14:48):
earnings revisions. When you throw a lot of very
smart people looking at the sameset of data, you're going to get
a lot of people that come to thesame conclusion, which means
that a lot of people are going to get stuck in the same trades.
And then if you have some exogenous factor happens and
(15:11):
someone needs to gross down or someone's book of some size is
getting hurt and now they're getting hit by the risk
department saying, hey, you justtriggered A drawdown limit, we'd
like you to cut your book. All right, Now you have an
indiscriminate seller, like theyjust have to sell.
So someone starts selling and there's no fundamental reason
(15:33):
why you'd sell that stock, but like, you just have to cut your
book. Well that may put pressure on a
stock down 4 or 5%. And then someone else is looking
and says why is this position down Now their performance is
starting to drag and they're thinking, Oh well I can't take
this pain anymore, now I have tosell.
(15:55):
And that's how it kind of becomes a self fulfilling
prophecy until the selling stopsand it's exhausted.
Like all the books are grossed down or someone with a bigger
checkbook says I'm willing to take those out of this.
How do you think about it now, Dave, after having been in that
side of the table and witnessed how things play out in your new
(16:16):
role? Do you take a more patient lens
and know, hey, this earnings momentum being the the sort of
methods you mentioned there, like, hey, I can be a bit more
patient. These guys are going to slam it.
But if I can take A2345 year view there's real money to be
made while the kind of straighten or the multi Strat
shots hate this stock for whatever reason in the short
(16:38):
term. Yeah, I think, you know, when
you're given freedom, you can take advantage of that.
I mean, like now, having listened to Neil talk about
Ivanhoe and listening to their web cast last week, Ivanhoe
seems like a very mispriced story.
Obviously, this is something that's going to take a little
time and for someone in a different seat, right?
(17:03):
Like that's still messy. Like you don't know when, what
the new mine plan looks like, what next year's production is
ultimately going to look like. So you can't actually stay with
comfort. Oh, I understand how this
earnings trajectory is going to move.
Whereas I'm sitting here and saying, well, Robert Friedland
(17:27):
doesn't really trade at a discount ever.
And he's got Western Forland's and Zambia and Angola, like
sitting there all waiting to getproved out.
You're going to fix whatever this mine issue is, right?
I mean, I would hope so for their sake.
And you can, you know, in a world where every single mining
(17:51):
company wants more copper, I'm sure there'd be tons of people
wanting to buy. I even know 50% up from here.
But Robert Freeland's not selling.
I even know 50% up from here. He's probably things were a lot
more so. But yeah, I mean, being able to
say this is the value disconnects and I can sit on
this for a bit is nice. Now you could do that at a multi
(18:13):
manager as well, right? But like you're just keeping
that position size a lot smallerand it's not necessarily going
to really move the needle for you.
Why is it? Why is it smaller?
Can you? Can you case that out is because
the is so long dated and it's a gradual?
Thing you can't determine when it's going to work with any sort
(18:35):
of confidence. So because of that, you just
can't size it up. Gotcha, gotcha.
And the whole kind of betting and position sizing around of
events, it can be kind of drastic to the other side as
well, right. If you have some unexpected
volatile shock to in a big size position then that's where
things can go pear shaped. Thanks.
(18:56):
Beginning of April and Trump's tariff announcements.
I mean, that was just pure grossdown behavior for two weeks.
Yeah, yeah. When you and I first connected
Dave before you know we even jumped on a call, you sent me
this message and I said I'm curious to learn more about the
multi Strat like a New York hedge fund world and a pretty
unfamiliar from it. And you replied and you said the
(19:16):
worst way to make money in the sector.
And that kind of stuck with me. It resonated for a lot of ways
because you look around our sector and it's created some
phenomenal wealth for many people.
But the people that got rich, they got rich by taking
entrepreneurial risk. They were patient, they had the
long term outlook. They may be back to geological
alpha as a strategy. Maybe they had phenomenal kind
of like long term patient stock picking ability.
(19:36):
But the common theme amongst it all is you had to stick with it
through the volatility and definitionally like a multi
Strat hedge fund can't do that. Yeah.
I think the other piece of that is concentration, right?
Like. Yeah.
You make money by betting on something in a major way.
(19:57):
You make money at a multi manager too.
I'm not discounting the wealth generation there, but if we're
talking wealth, you. Shouldn't you can be a
millionaire at a multi chart hedge fund, but you're not going
to be a billionaire like what some mining entrepreneurs can
be? Yes, yeah.
I mean, if there is a difference, and I think it's a
difference in your personality, make up your style of who you
are and how you think and what you want.
(20:20):
You know, there are a lot of merits to it.
But again, if you want to swing and that's your personality
type, then you can't fit a square peg into a rental.
What are the other parts of the strategy which may be like
useful or applicable to other sectors, but there are inherent
limitations when you look at it with them.
You know, the mining or commodity lens.
(20:42):
Yeah. So I think you know, when you go
back to why these have been so successful, you go back to the
early 2000s when these sorts of funds were really getting
started, it was you actually hada lot of money getting made in
utilities. So I mean, think about the
market is really just every single day, who are you
(21:05):
arbitraging, right? Like where is the information
asymmetry and what are you taking advantage of?
And you go back to like early 2000s with utility hedge funds
and they were arbitrage in like long only money that wanted a
dividend and really wasn't doinga lot of work on what was going
(21:29):
on with those companies. Then you throw a bunch of like
really smart hedge fund people with a lot of time looking at
fuel clauses and how CapEx was going to change rate base and
change earnings trajectories of utility companies, which seems
like, you know, very nuanced, but it made a huge difference.
(21:52):
And you would have these gaps onearnings days where people went,
oh man, I didn't realize that was going to happen.
So that's where you had true information asymmetry and where
you saw a lot of alpha generation and why this became
so attractive these days, right?Like you're who you're
(22:16):
arbitraging has entirely changed.
You know, it, it's not the long only is really anymore like so
much money has moved to the multi managers that you're kind
of arbitraging each other and it's what what did you hear?
Like what data point just took came out from that conference.
(22:36):
The management team said what and and now I need to
reconfigure what I was thinking for this quarter.
And you know, if if you talk to a management team, a, a
complaint that they would have when they talk to some of these
pod shop analysts and in meetings is the questions, you
know, sometimes revolve around like what's going on with your
(22:58):
business. But it's more like, how's this
quarter looking? Like what's in my model?
Like how do I fix this? And that's where the arbitrage
has kind of moved to which it's just different.
And you invested globally, right, Dave?
Yeah, that was exhausting. Did you notice this phenomenon
was much more pronounced in the States than it was perhaps in
(23:19):
other markets? Or by this point, is it pretty
equally sane everywhere? Every market's different. the US
is different from Europe is different from Australia.
Australia always felt like you really needed to be there to
know what people were getting excited about.
There would be days where I would not understand why
(23:41):
Fortescue was moving the way it was, and it was just like, wow,
everyone's really excited about iron ore right now.
But yeah, I think still, every geography is kind of its own
animal. I want to talk about the the
shorting component as well, because we've we've talking
about the difficulties in, in staying long and being long and
sizing that. But shorting is this kind of
(24:01):
dark art and it's. Yeah, I think it's kind of
simplified a bit. Yeah, I think the nuances and
just how difficult it is, is a bit underappreciated.
Can you sort of give a bit of color on just how difficult it
is to sort of stay short, the various costs you have to pay to
just have a position on short and what the difficulty it is in
(24:23):
staying on that side of the trade?
Yeah, I think it depends what you're shorting.
If you're shorting something where everyone else is short,
that's where the cost and the risk is like shorting lithium
stocks. Now, if you have a bunch of
people short, you tend to pay more in borrow rate, which means
(24:46):
you are paying to think that it's going to go down.
And that's where that can kind of create a problem.
And that's kind of where your your cost is.
The painful side of that is you may be looking at Albemarle and
say like Albemarle has no cash flow right now and everyone is
(25:07):
at this fast markets conference falling over themselves to say
lithium's oversupplied until 2030.
No, it's 2033, you know, like and lo and behold, Albemarle is
up 7 1/2% at one point today andit's gone up 15% in like 4 days.
So that is a function of the fact that probably a lot of
(25:27):
people are short. You can't take the pain because
you start losing money and now you're like worried about that
drawdown limit and having your capital cut.
So one person starts to buy and cover their position and then
that becomes reinforcing and youget the short spans.
So that's kind of where you haveyour cost is you have that risk
(25:48):
of a short squeeze on a crowded name.
And if it is a crowded name, youcan tend to have to pay for the
right to borrow it. But otherwise, I mean, if you
want a short BHP, it's not goingto cost you anything.
It's not going to hurt you, It'snot really going to move like
that. That tends to be a very like
dummy type placeholder short that people would use.
(26:12):
When you you're borrowing shit, it's too short.
Sometimes the party that you borrowed them from can demand
them back as well. Right, they can pull them.
Back. They can pull them back.
Yeah, that's, that's a, that's adynamic that I didn't understand
until recently. Yeah.
So I mean that you can have shenanigans like that if you're
trying to be cute and short something with $500 million
(26:35):
market cap. Yeah, well, someone decides to
pull the borrow on a small company that can have a very
meaningful impact. Shorting something that is small
tends to not be the best idea inthe world.
I'm curious to tease out, so howdo you get, how do you get like
you know for every dollar invested like 4-4 dollars long
(26:56):
and $4.00 short, like how does that work?
That's set up with prime brokers, so they'll let them
borrow against that and up against your asset base, and
they're working under the assumption that because the lack
of risk that they're taking, they're very comfortable lending
(27:18):
out a lot of money. Lack of risk, it's a funny word,
right? There's like this, this I guess
inherent assumption that yeah, like a lot of these different
risks are being hedged out and all of the the various pods are
all in, in independent views. There's not the the like, yes,
the, the it's diversified portfolio risk as opposed to
magnified and amplified. But do you also think that
(27:40):
there's like a big cascade kind of risk that that can enhance a
lot of market volatility as a result of?
I mean a huge hidden risk, right?
I think the mobile T managers had a huge issue during the
COVID. I think March 2020 was very
scary for a lot of funds. You had a lot of PMS losing
(28:00):
money. You're looking at returns doing
negative and wondering if you'relevered.
How are we paying this back? Given the amount of leverage in
the system, there's an inherent risk that's sitting there every
single day. You spoke as well before about
having potentially a number of teams or number of pods looking
(28:22):
at certain sectors. How did you always feel sitting
within a metals and mining kind of team?
Within a bigger shop? I'm sure tech would have had way
more pods kind of allocated to it.
How much attention was paid to the metals and mining space in
these New York fans? You get some.
I mean, look, it's niche. There generally is not a ton of
(28:43):
interest for people looking for mining.
And I think it's also changed a bit in that the space is not
nearly as liquid as it used to be, which makes it a lot harder
because they have vast amounts of capital, right?
And they want you to put it to work.
If you're not comfortable because of a lack of liquidity
(29:05):
to have a $30 million position on and something, then you're
kind of constrained. So that's kind of the governing
factor. I guess what is the market cap
of your space relative to the overall market?
That tends to be how teams are constructed.
(29:26):
You're obviously going to have way more tech than you will
mining or energy, but there was a problem years ago where you
were over represented in some ofthe smaller sectors like energy
and you had many more teams thanyou should have had for the
market cap, which then created that phenomenon of increased
crowding and greater risk from everyone being on the same side
(29:50):
of a trade. The beauty is you get to meet
with management teams, you get access.
However, when you are at one of these bigger places, you often
have to share meetings. So that can be fine.
But if you're trying to work on a thesis and flush something out
with a management team, you don't necessarily want to share
(30:12):
the meeting because maybe you'reeducating someone who's a
competitor. Ultimately, even though you work
at the same fund and you know you're trying to create this
alpha in your head is like, OK, I think this is an idea and I
want to work towards something. And then someone is getting a
free ride on what you're workingon.
(30:33):
And that can create a bit of an issue where people get
competitive with who gets meeting spaces.
The access to management is an interesting part, right?
Like remarkable access to the CTS of these mining companies.
But isn't it kind of like it's an odd thing because you're a
hedge fund, you know, like you're going to buy one week,
(30:53):
sell the next week. Why is Millennium afforded such
phenomenal management proximity when they don't care about
holding the stock for too long? It's just how much you pay.
It's the sell side that is orchestrating all the access.
Yeah, and you pay. Fees.
You're the one paying them all the money.
Makes sense? Who are the management teams
from your time working there that really left a impression.
(31:16):
There are a few names that were running some of these big
companies that you were kind of wowed by.
On like mining management teams that I got access to.
Ivan was very impressive. The whole Glencore team was was
great. Mark, Bonnie was was very
impressive. Obviously the koala just wrote
(31:37):
something about what he thinks might happen there.
So that'll be interesting to seeif that plays out, yeah.
I reckon low probability on thatone, but yeah, maybe the koala.
Knows. Yeah, well, Rio's such a mess at
the moment, as you know. Like that would be quite the
turn of events. Yeah, but that was top of my
head. Those would be the names that I
(31:58):
went with. Yeah.
If you had no constraints on like investing in the sector,
let's say you had $100 million of Personal Capital, how would
you deploy your own Personal Capital without any
institutional constraints? How would your strategies be
different from? What I'm doing right now?
Not different at all really. It's kind of blending a medium
(32:24):
term thought process and monetizing as necessary on the
trades. I mean, I've been in first
Quantum since March of last yearand thinking that Panama has to
come to the table. It's coming back, coming back.
Yeah, well, Chiquita just left Panama, so that might become I
(32:46):
traded in and out of that a ton.I think when you can blend it,
but this is my style. But when I'm able to blend a
longer term thesis with short term monetization and and not
have to worry about, oh, my copper length is is too long
here. Well, that's the risk that I
want. That's fine.
You know, if I want to hedge outcopper, I'll short a copper
(33:08):
contracts, which you may not be able to do at a multi manager.
Maybe you have to, you know, force a copper like company
short and you know, all the copper companies are cheap then
like that's not what you want todo.
So yeah, it's really just havingthe flexibility to take the
(33:29):
actual risks that you want and not forcing risks that you don't
want. You mentioned a change in
liquidity over time. How else have you seen markets
change over your time participating?
The crowdedness aspect has entirely changed.
I mean, when I entered the business in 2007, that was not
(33:49):
really something that you even thought about.
I would say really 20/13/2014 iskind of the first time that we
really started to notice, Hey, you're getting like these weird
gross down events where I don't know why this is happening, but
positions that you like, I like,I mean, we all like those like,
(34:11):
why is this happening? And like so that, that I, I
think is, has been one of the biggest changes.
And that's just been a result ofwhere the capital has gone and
the different makeup of the investor base trading in the
stocks in our world where thingsare not as liquid as they used
to be 10 years ago. You throw in the fact that even
(34:35):
more smart people are looking atthe same ideas that creates
dislocations. Do you think those and mining
markets are substantially more inefficient than other markets?
More inefficient, yeah. You know what's interesting is
that on a very simplistic basis,these names always like for most
(35:01):
of a period of time, will alwaysjust follow what the commodities
doing. There's very little, unless
you're talking about a developerwhere you're actually getting
NAV accretion in it. Most of these things just follow
what they should be following and then you get periods where
(35:22):
that just stops working and you look at this and think, well
this is going to correct itself.Like if a copper company hasn't
done it, nothing bad has happened and it is dislocated
from what has happened with the copper price times it's
projected production. Why is this happened?
(35:42):
And yeah, you get periods where the market just misses things
more, overreacts to things. I think about gold fields last
year with Solaris Norte and their pipes rose in Chile, the
stock was down like 15%, like 3 billion or something like that
got taken off the market cap on something that was going to be a
(36:02):
handful of months delay. Yeah.
And you know, based on what theytold you, like, OK, you lost a
couple months, you got to lose acouple $100 million in gold
sales. Well, the market just took you
down like $2 billion. Clearly we overreacted here.
Like what, what are we doing? And, you know, within two weeks,
(36:23):
stocks right back up 15%. So you tend to get periods where
you get a lot of overreactions And, and it's it's really is
this going to happen? You know, is it going to correct
tomorrow? Or in the case of Ivan, is this
going to take a couple months? You just don't know.
I can't let you go Dave, withoutasking you about maybe some of
(36:43):
your more recent views you've been fleshing out lately.
I spoke to you on the phone maybe like 3 weeks ago and Tommy
Sigma was looking pretty cheap where it was and then within a
week it had popped 20%. So I really just.
Need a tip. The yeah, I mean first Quantum's
working a little too well at themoment.
Sigma, I still think is interesting in how you structure
(37:04):
the trade as what I was trying to do was sell a long dated put
at $3, which was going to give me the right to buy it at like
260 a share, which is essentially going to be you're
going to be buying it at 580 spot.
And then taking the proceeds from selling those puts to buy
(37:25):
calls at 10 thinking all right, if you go back to some sort of
cost curve at 800, so it goes back to the 12.
So that to me was like an interesting way to just think
about how you could maybe structure a bullish lithium that
even though I'm not bullish on lithium.
(37:49):
The name that I think is most interesting right now, which
honestly I hope is kind of pay off before this podcast gets
released, is Ramaco, which is a little met coal producer in West
Virginia. But they're sitting on this rare
earth project in Wyoming, which is in carbon or it's not in Hard
(38:10):
Rock. They think it's a lot easier to
process. They are waiting to release a
report from floor. It was a pretty good indication
that the guy who was running critical minerals for Floor
resigned and joined Ramako to run this project, so I'm
assuming that the economics of the project are pretty good.
He also left Australia to move to Wyoming to do that.
(38:34):
Based on the resource base that we are put out for the project
is you, you're pretty equivalenton size as MP now.
I did really enjoy the rare earth pod you guys did and talk
about the trouble with the processing and what not.
You are paying a very small amount.
(38:55):
I mean the market cap for this company's gone from 500 when I
got into it was probably like 650 now on an equivalent basis
to MP right now because M PS valuation is absolutely absurd.
This project is worth like $80 ashare on a $12.00 stock.
The base coal business is worth like 9 at the moment.
(39:16):
Highly asymmetric. It may not work at all, maybe a
total dud, but they are going tobe releasing that report.
They're doing a ribbon cutting ceremony in a couple weeks with
a bunch of federal officials. 2 months ago now, Joe Manchin, who
was AUS senator, joined the board of the company.
But it's an interesting idea. I don't know that's going to
work, but. The only person that's pitched
(39:37):
away, I'm in cold stock as a as a rare ass like asymmetric
trade. But it's kind of funny because
these cold guys must get like rare FOIMO, like they want a
sexy commodity because like Whitehaven was a top 20
shareholder in Brazilian rare earths IPO.
Yeah, I don't know. These cold guys just want to be
relevant and important to the politicians.
(39:59):
You know, they got to do something.
Yeah, hopefully it works. Dave, this has been been
fascinating and super insightfulinto a world we don't understand
too much about, so thank you forsharing your time with us.
Yeah, of course, that was helpful.
Thanks so much mate. Awesome.
How good was that mate? I was stoked to share that
conversation and thanks again toDave Sparks for joining us.
(40:20):
A massive thank you also to Inter Mining Services, Rounded
standard ground support and Cross boundary.
Energy hoodoo hoodoo. 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.
Do you think those are money markets?
Are. More inefficient.
More inefficient. You know, it's interesting.
These names always just follow what the commodities do, and
then you get periods where that just stops working.
(00:20):
We talk about what it takes to make a good commodity investor
all the time and namely you've got to ride volatility through
the cycle. We know that you've got to be
patient, but there are these bighuge institutions, multi Strat
hedge funds, which by definitiona very short term oriented.
And thankfully today we've got just a guess to to tease out why
(00:42):
multi Strat hedge funds or pod shops are the worst way to
invest in the sector. This is a a super exciting chat
and it's one we actually wanted to to have for quite a while.
I think we're going to to a large extent try and demystify
what is pretty foreign to a lot of the punters around here,
right? So you might hear the words pod
shop, multi Strat firm, you know, these big hedge funds like
(01:05):
Citadel, like Millennium, like .72.
And we're going to speak with David Sparks and he's going to
try and help us answer this question and sort of share
thoughts and share ideas around why they have such a tough time
investing in commodity players, in mining companies, in natural
resource companies because of that vicious commodity cycle
that a lot of the other investors we speak with try and
(01:27):
make a winning from, right? And, and David Sparks is, yeah,
one of the, one of the, the wonderful few people out there
who has worked in one of these institutions.
He's worked at Millennium, but it's not the only the only one
that like he's he's working this, this kind of hedge fund,
more multi Strat model, multi manager model.
Like several times he actually started his career like, you
(01:48):
know, working for a hedge fund for the for the Bass family.
Yeah, famous, famous oil family.And these days he's, yeah, he
works for First New York and he's got a more kind of
discretionary strategy that he runs, but still investing in our
favorite sector being and metalsand mining.
And I think he covers some energy too.
That's right mate, I'm excited to share this conversation.
(02:09):
David Sparks, thank you so much for joining Money of Mine.
With a lot of that, you're willing to have the
conversation. So peeling back the curtain on
the mysterious multi manager hedge fund, world pod shops,
multi Strat funds, they've got avariety of different names, but
they have kind of taken over where capital is, what's moving
markets, where a lot of the flowis.
(02:29):
So we have to talk about it. There's an intersection in
metals and mining. You've worked at multi Strat
hedge funds. You spent three years with
Millennium and that wasn't your only visit in that world, but
you've seen the lot and you're now obviously working prop shop
instead with a lot more discretion.
What is a multi Strat hedge fund?
What is a pod shop? The the rise of the multi Strat
(02:51):
it has been 20 years in the making.
I think a lot of people know thebig names being Millennium
Citadel in 2072 or not, but it'sa grouping of a lot of different
types of strategies. The idea being if we put a lot
of smart people together that run money differently, we can
(03:15):
approach the efficient frontier of returns and offer the best
risk reward to our investors. That's the idea.
And how did you find yourself Dave, in one of these with a
meadows and mining lands? Because we always hear that
meadows and mining is a crediblysmall market and you're in the
States. So you found your way to
(03:36):
investing a bit of money in thisspecific sector for a multi
strap fund? Yes.
So they're always on the lookoutfor talent and you know, their
assets have been growing very steadily for a very long time.
I had been working for a portfolio manager for a wealthy
(03:58):
family for the first seven yearsof my career.
And then he got interest from Millennium and they kind of made
him an offer. And we went over and they throw
a bunch of money at you. You take what you were doing
before and you say, OK, I can dothat there.
And then that's how that whole thing happens.
With the model of these multi Strat funds is it's so different
(04:20):
to what you can be used to anywhere else right?
Like the risk overlay, the way that capital scales in
accordance with performance, butthat model has enabled them to
accrue so much funds under management and now there's such
a force in our markets. But when you're going from a
more discretionary strategy to and then applying it in a multi
Strat world with like how did, how did that, how did that, how
(04:42):
did that pan out? How'd that go?
It is not entirely different from what you know you would do
with a traditional longshore, but you know, there's a lot more
emphasis placed on risk controls.
I mean they have a prescriptive formula that they try to provide
to management teams and that really isn't it.
(05:08):
How to say this, you're kind of fitting, you're fitting A
desired volatility construct into a portfolio.
So the with the technology or consumer or utilities, it's
pretty easy to fit into like what exposures you're taking,
(05:28):
how do you find, how do you define your idiosyncratic risk?
Where it gets trickier, I think to the point of your question
with mining or energy or something with commodity risk is
how do you define what idiosyncratic risk you're taking
and do it in a kind of neutral way?
(05:52):
That's not going to put them at risk, right?
Because I mean, their whole gameis growing assets, generating
fees off those assets. And what they're doing is
putting a lot of leverage on that capital.
So think of it, for every dollarthat they get from their
(06:15):
investors, you know, you're probably putting 3 to $4.00 long
and three to $4.00 short into the marketplace.
So if you're a 10 billion fund, you might have 30 billion long,
30 billion short spread across anumber of teams.
If you lose money, you know, if if a couple of teams start
(06:37):
losing money, that creates a huge problem for that asset base
and and the returns to the investors.
But the idea is like, all right,if I have 20 smart teams and I
can tell them all right, fit into this risk model.
And as long as you stay within the this risk model, which we've
(06:59):
figured out is what's going to keep your volatility down, then
you're smart. You're going to have your alpha
and we're going to be able to generate returns with a ton of
leverage that's going to look amazing to our investors.
The issue with that is the incentive structure of the
management team of a multi manager.
(07:23):
Then you have the incentive structure of like the portfolio
manager and what are they tryingto achieve and your investing
style may not necessarily align with wanting to fit perfectly
into that structure. Where as you can be much more
(07:45):
risk seeking, willing to ride out more volatility in what's
happening with your positions and your theses because of the
leverage employed in the system.Dave, can you just expand on the
neutral component? Yeah.
So there are a number of factorsthat these guys are looking at
and it varies by firm, like how intense the factor models are,
(08:07):
whether it's value or growth or momentum or just beta.
Like some, some firms are very focused on having you like very
factor neutral where your longs and shorts kind of cancel each
other out. So your exposure to the value
(08:27):
factor would be 0 in essence. But if you build a portfolio
where the positions you like thebest you want to take create an
imbalance, then they can either tell you you need to cut the
positions or you start forcing in other positions that you
(08:48):
don't necessarily want in your portfolio just to hedge out some
sort of factor risk. And I think that's where a lot
of people tend to get frustratedwith the system, if they are
frustrated with the system, is that you can spend time forcing
positions that you don't necessarily want in a portfolio,
which can be often diluted to your process, your alpha, your
(09:12):
time. That can be one of the
significant frustrations. The whole model, it's looking to
reward alpha, right? And you as a portfolio manager
will have some insights to express them.
With certain longs and shorts, maybe they get hedged out.
But if you're roughly kind of neutral in some respects, then
that idiosyncratic insight should be rewarded as alpha and
(09:35):
you get remunerated accordingly.Is that kind of a fair
characterization? Yeah, that's basically the idea.
And also your comp at the end ofthe year, you know there'll be a
baseline percentages that you'repaid, but that also scales
generally with most firms based on how well you perform relative
(09:57):
to a risk model. So the model itself is fantastic
for endowments and all these sorts of big institutional
allocators of capital because the risk parameters are so
tightly controlled and all thesesorts of things.
So they can give money to it andthey're happy when the model
works. Sharp ratio, sharp ratio.
(10:18):
But if we look at it from the other lens of financing mining
companies and financing assets to get them built and get them
off the ground, there seems to be a bit of a disconnect because
the duration that needs to go inand the volatility often
inherent in financing mining projects is, you know, it's
hugely volatile. So how do you marry those up and
(10:40):
you sort of sitting in between making no way?
You don't, I think this is it's one of the interesting things,
right? It's like the multi managers are
so large and you're so active inthe market trading that you
generate tons of commissions that you pay to the street,
which means you have world classaccess to management teams.
(11:03):
So you end up getting to know management teams incredibly well
and that is one of the largest benefits of working in a place
like this. However, because of the risk
model, you are forced in largelyinto being a traitor, especially
in a space like ours which is sovolatile that you have to
(11:25):
constantly be monetizing positions.
And if you're talking about financing a mind and taking a
long term view on something or writing something out through a
period of volatility. I mean, I'm thinking about my
own experience in 2015 trying toride out Glencore through
everyone thinking it was going bankrupt at the end of that
(11:48):
year. That is not viewed favorably.
So to your question, very difficult to marry those two
ideas. Management teams get amazing
access to these investors and I think they tend to enjoy
conversations because, you know,there's a lot of talent, there's
(12:09):
a lot of very smart people that work at these places, but they
are not your typical cornerstonelong term shareholders.
Talk me through this Glenn Core period.
Oh, 2015, not a positive time inour markets.
One or two of the trading houseswere going bankrupt.
(12:30):
I think it was Noble groups thatwas having issues.
If I recall, everyone then looked at Glencore and said, oh,
Glencore's got a trading business.
Glencore is going bankrupt. Glencore CDs was blowing out in
the fall of 2015. Ivan's coming to town and this
is great part of working at multi manager.
You have access to Ivan, got to sit down a couple times.
(12:52):
Hey, what is your trading business like?
From my understanding, you move cold from here to there and the
duration is very short. You should not have a financing
problem. That got reiterated a number of
times. OK, Understand this like you're
not actually going to go bankrupt.
Trying to explain that when CVS markets are telling people
(13:16):
otherwise became a difficult discussion to have.
How do you manage that volatility then in a 2015 is the
ultimate kind of bear market thecommodities where everything's
like do you get forced out of a position early or?
I mean, that's what happens. You get forced out.
You really have to shrink, you force on bad hedges.
Yeah, Anything that you shouldn't do or that you
(13:40):
wouldn't want to do. We see, we see this like
justification about volatility in in markets these days when
there's unexplainable volatility, like fingers get
pointed to a pod shop blew up. And yeah, it kind of feels like
an explanation just to just to explain something away.
But it is a real phenomenon too,right?
Like what? Does that mean, Well, think of
(14:02):
it as a kind of like a cascadingfactor, right?
Where there's so much money and a Millennium might have 10 teams
trading 1 sector and .72, I havea couple teams that will have a
number of teams. So you have all this capital
flowing into a sector and especially if the sector is
(14:24):
small, you can get very crowded positions.
If you look at the factors to watch on Bloomberg, if you look
at a 10 year return profile, thebest performing factor is
earnings momentum, which makes alot of sense.
What hedge fund analysts are trained to look for and invest
in are positive earnings revisions and short negative
(14:48):
earnings revisions. When you throw a lot of very
smart people looking at the sameset of data, you're going to get
a lot of people that come to thesame conclusion, which means
that a lot of people are going to get stuck in the same trades.
And then if you have some exogenous factor happens and
(15:11):
someone needs to gross down or someone's book of some size is
getting hurt and now they're getting hit by the risk
department saying, hey, you justtriggered A drawdown limit, we'd
like you to cut your book. All right, Now you have an
indiscriminate seller, like theyjust have to sell.
So someone starts selling and there's no fundamental reason
(15:33):
why you'd sell that stock, but like, you just have to cut your
book. Well that may put pressure on a
stock down 4 or 5%. And then someone else is looking
and says why is this position down Now their performance is
starting to drag and they're thinking, Oh well I can't take
this pain anymore, now I have tosell.
(15:55):
And that's how it kind of becomes a self fulfilling
prophecy until the selling stopsand it's exhausted.
Like all the books are grossed down or someone with a bigger
checkbook says I'm willing to take those out of this.
How do you think about it now, Dave, after having been in that
side of the table and witnessed how things play out in your new
(16:16):
role? Do you take a more patient lens
and know, hey, this earnings momentum being the the sort of
methods you mentioned there, like, hey, I can be a bit more
patient. These guys are going to slam it.
But if I can take A2345 year view there's real money to be
made while the kind of straighten or the multi Strat
shots hate this stock for whatever reason in the short
(16:38):
term. Yeah, I think, you know, when
you're given freedom, you can take advantage of that.
I mean, like now, having listened to Neil talk about
Ivanhoe and listening to their web cast last week, Ivanhoe
seems like a very mispriced story.
Obviously, this is something that's going to take a little
time and for someone in a different seat, right?
(17:03):
Like that's still messy. Like you don't know when, what
the new mine plan looks like, what next year's production is
ultimately going to look like. So you can't actually stay with
comfort. Oh, I understand how this
earnings trajectory is going to move.
Whereas I'm sitting here and saying, well, Robert Friedland
(17:27):
doesn't really trade at a discount ever.
And he's got Western Forland's and Zambia and Angola, like
sitting there all waiting to getproved out.
You're going to fix whatever this mine issue is, right?
I mean, I would hope so for their sake.
And you can, you know, in a world where every single mining
(17:51):
company wants more copper, I'm sure there'd be tons of people
wanting to buy. I even know 50% up from here.
But Robert Freeland's not selling.
I even know 50% up from here. He's probably things were a lot
more so. But yeah, I mean, being able to
say this is the value disconnects and I can sit on
this for a bit is nice. Now you could do that at a multi
(18:13):
manager as well, right? But like you're just keeping
that position size a lot smallerand it's not necessarily going
to really move the needle for you.
Why is it? Why is it smaller?
Can you? Can you case that out is because
the is so long dated and it's a gradual?
Thing you can't determine when it's going to work with any sort
(18:35):
of confidence. So because of that, you just
can't size it up. Gotcha, gotcha.
And the whole kind of betting and position sizing around of
events, it can be kind of drastic to the other side as
well, right. If you have some unexpected
volatile shock to in a big size position then that's where
things can go pear shaped. Thanks.
(18:56):
Beginning of April and Trump's tariff announcements.
I mean, that was just pure grossdown behavior for two weeks.
Yeah, yeah. When you and I first connected
Dave before you know we even jumped on a call, you sent me
this message and I said I'm curious to learn more about the
multi Strat like a New York hedge fund world and a pretty
unfamiliar from it. And you replied and you said the
(19:16):
worst way to make money in the sector.
And that kind of stuck with me. It resonated for a lot of ways
because you look around our sector and it's created some
phenomenal wealth for many people.
But the people that got rich, they got rich by taking
entrepreneurial risk. They were patient, they had the
long term outlook. They may be back to geological
alpha as a strategy. Maybe they had phenomenal kind
of like long term patient stock picking ability.
(19:36):
But the common theme amongst it all is you had to stick with it
through the volatility and definitionally like a multi
Strat hedge fund can't do that. Yeah.
I think the other piece of that is concentration, right?
Like. Yeah.
You make money by betting on something in a major way.
(19:57):
You make money at a multi manager too.
I'm not discounting the wealth generation there, but if we're
talking wealth, you. Shouldn't you can be a
millionaire at a multi chart hedge fund, but you're not going
to be a billionaire like what some mining entrepreneurs can
be? Yes, yeah.
I mean, if there is a difference, and I think it's a
difference in your personality, make up your style of who you
are and how you think and what you want.
(20:20):
You know, there are a lot of merits to it.
But again, if you want to swing and that's your personality
type, then you can't fit a square peg into a rental.
What are the other parts of the strategy which may be like
useful or applicable to other sectors, but there are inherent
limitations when you look at it with them.
You know, the mining or commodity lens.
(20:42):
Yeah. So I think you know, when you go
back to why these have been so successful, you go back to the
early 2000s when these sorts of funds were really getting
started, it was you actually hada lot of money getting made in
utilities. So I mean, think about the
market is really just every single day, who are you
(21:05):
arbitraging, right? Like where is the information
asymmetry and what are you taking advantage of?
And you go back to like early 2000s with utility hedge funds
and they were arbitrage in like long only money that wanted a
dividend and really wasn't doinga lot of work on what was going
(21:29):
on with those companies. Then you throw a bunch of like
really smart hedge fund people with a lot of time looking at
fuel clauses and how CapEx was going to change rate base and
change earnings trajectories of utility companies, which seems
like, you know, very nuanced, but it made a huge difference.
(21:52):
And you would have these gaps onearnings days where people went,
oh man, I didn't realize that was going to happen.
So that's where you had true information asymmetry and where
you saw a lot of alpha generation and why this became
so attractive these days, right?Like you're who you're
(22:16):
arbitraging has entirely changed.
You know, it, it's not the long only is really anymore like so
much money has moved to the multi managers that you're kind
of arbitraging each other and it's what what did you hear?
Like what data point just took came out from that conference.
(22:36):
The management team said what and and now I need to
reconfigure what I was thinking for this quarter.
And you know, if if you talk to a management team, a, a
complaint that they would have when they talk to some of these
pod shop analysts and in meetings is the questions, you
know, sometimes revolve around like what's going on with your
(22:58):
business. But it's more like, how's this
quarter looking? Like what's in my model?
Like how do I fix this? And that's where the arbitrage
has kind of moved to which it's just different.
And you invested globally, right, Dave?
Yeah, that was exhausting. Did you notice this phenomenon
was much more pronounced in the States than it was perhaps in
(23:19):
other markets? Or by this point, is it pretty
equally sane everywhere? Every market's different. the US
is different from Europe is different from Australia.
Australia always felt like you really needed to be there to
know what people were getting excited about.
There would be days where I would not understand why
(23:41):
Fortescue was moving the way it was, and it was just like, wow,
everyone's really excited about iron ore right now.
But yeah, I think still, every geography is kind of its own
animal. I want to talk about the the
shorting component as well, because we've we've talking
about the difficulties in, in staying long and being long and
sizing that. But shorting is this kind of
(24:01):
dark art and it's. Yeah, I think it's kind of
simplified a bit. Yeah, I think the nuances and
just how difficult it is, is a bit underappreciated.
Can you sort of give a bit of color on just how difficult it
is to sort of stay short, the various costs you have to pay to
just have a position on short and what the difficulty it is in
(24:23):
staying on that side of the trade?
Yeah, I think it depends what you're shorting.
If you're shorting something where everyone else is short,
that's where the cost and the risk is like shorting lithium
stocks. Now, if you have a bunch of
people short, you tend to pay more in borrow rate, which means
(24:46):
you are paying to think that it's going to go down.
And that's where that can kind of create a problem.
And that's kind of where your your cost is.
The painful side of that is you may be looking at Albemarle and
say like Albemarle has no cash flow right now and everyone is
(25:07):
at this fast markets conference falling over themselves to say
lithium's oversupplied until 2030.
No, it's 2033, you know, like and lo and behold, Albemarle is
up 7 1/2% at one point today andit's gone up 15% in like 4 days.
So that is a function of the fact that probably a lot of
(25:27):
people are short. You can't take the pain because
you start losing money and now you're like worried about that
drawdown limit and having your capital cut.
So one person starts to buy and cover their position and then
that becomes reinforcing and youget the short spans.
So that's kind of where you haveyour cost is you have that risk
(25:48):
of a short squeeze on a crowded name.
And if it is a crowded name, youcan tend to have to pay for the
right to borrow it. But otherwise, I mean, if you
want a short BHP, it's not goingto cost you anything.
It's not going to hurt you, It'snot really going to move like
that. That tends to be a very like
dummy type placeholder short that people would use.
(26:12):
When you you're borrowing shit, it's too short.
Sometimes the party that you borrowed them from can demand
them back as well. Right, they can pull them.
Back. They can pull them back.
Yeah, that's, that's a, that's adynamic that I didn't understand
until recently. Yeah.
So I mean that you can have shenanigans like that if you're
trying to be cute and short something with $500 million
(26:35):
market cap. Yeah, well, someone decides to
pull the borrow on a small company that can have a very
meaningful impact. Shorting something that is small
tends to not be the best idea inthe world.
I'm curious to tease out, so howdo you get, how do you get like
you know for every dollar invested like 4-4 dollars long
(26:56):
and $4.00 short, like how does that work?
That's set up with prime brokers, so they'll let them
borrow against that and up against your asset base, and
they're working under the assumption that because the lack
of risk that they're taking, they're very comfortable lending
(27:18):
out a lot of money. Lack of risk, it's a funny word,
right? There's like this, this I guess
inherent assumption that yeah, like a lot of these different
risks are being hedged out and all of the the various pods are
all in, in independent views. There's not the the like, yes,
the, the it's diversified portfolio risk as opposed to
magnified and amplified. But do you also think that
(27:40):
there's like a big cascade kind of risk that that can enhance a
lot of market volatility as a result of?
I mean a huge hidden risk, right?
I think the mobile T managers had a huge issue during the
COVID. I think March 2020 was very
scary for a lot of funds. You had a lot of PMS losing
(28:00):
money. You're looking at returns doing
negative and wondering if you'relevered.
How are we paying this back? Given the amount of leverage in
the system, there's an inherent risk that's sitting there every
single day. You spoke as well before about
having potentially a number of teams or number of pods looking
(28:22):
at certain sectors. How did you always feel sitting
within a metals and mining kind of team?
Within a bigger shop? I'm sure tech would have had way
more pods kind of allocated to it.
How much attention was paid to the metals and mining space in
these New York fans? You get some.
I mean, look, it's niche. There generally is not a ton of
(28:43):
interest for people looking for mining.
And I think it's also changed a bit in that the space is not
nearly as liquid as it used to be, which makes it a lot harder
because they have vast amounts of capital, right?
And they want you to put it to work.
If you're not comfortable because of a lack of liquidity
(29:05):
to have a $30 million position on and something, then you're
kind of constrained. So that's kind of the governing
factor. I guess what is the market cap
of your space relative to the overall market?
That tends to be how teams are constructed.
(29:26):
You're obviously going to have way more tech than you will
mining or energy, but there was a problem years ago where you
were over represented in some ofthe smaller sectors like energy
and you had many more teams thanyou should have had for the
market cap, which then created that phenomenon of increased
crowding and greater risk from everyone being on the same side
(29:50):
of a trade. The beauty is you get to meet
with management teams, you get access.
However, when you are at one of these bigger places, you often
have to share meetings. So that can be fine.
But if you're trying to work on a thesis and flush something out
with a management team, you don't necessarily want to share
(30:12):
the meeting because maybe you'reeducating someone who's a
competitor. Ultimately, even though you work
at the same fund and you know you're trying to create this
alpha in your head is like, OK, I think this is an idea and I
want to work towards something. And then someone is getting a
free ride on what you're workingon.
(30:33):
And that can create a bit of an issue where people get
competitive with who gets meeting spaces.
The access to management is an interesting part, right?
Like remarkable access to the CTS of these mining companies.
But isn't it kind of like it's an odd thing because you're a
hedge fund, you know, like you're going to buy one week,
(30:53):
sell the next week. Why is Millennium afforded such
phenomenal management proximity when they don't care about
holding the stock for too long? It's just how much you pay.
It's the sell side that is orchestrating all the access.
Yeah, and you pay. Fees.
You're the one paying them all the money.
Makes sense? Who are the management teams
from your time working there that really left a impression.
(31:16):
There are a few names that were running some of these big
companies that you were kind of wowed by.
On like mining management teams that I got access to.
Ivan was very impressive. The whole Glencore team was was
great. Mark, Bonnie was was very
impressive. Obviously the koala just wrote
(31:37):
something about what he thinks might happen there.
So that'll be interesting to seeif that plays out, yeah.
I reckon low probability on thatone, but yeah, maybe the koala.
Knows. Yeah, well, Rio's such a mess at
the moment, as you know. Like that would be quite the
turn of events. Yeah, but that was top of my
head. Those would be the names that I
(31:58):
went with. Yeah.
If you had no constraints on like investing in the sector,
let's say you had $100 million of Personal Capital, how would
you deploy your own Personal Capital without any
institutional constraints? How would your strategies be
different from? What I'm doing right now?
Not different at all really. It's kind of blending a medium
(32:24):
term thought process and monetizing as necessary on the
trades. I mean, I've been in first
Quantum since March of last yearand thinking that Panama has to
come to the table. It's coming back, coming back.
Yeah, well, Chiquita just left Panama, so that might become I
(32:46):
traded in and out of that a ton.I think when you can blend it,
but this is my style. But when I'm able to blend a
longer term thesis with short term monetization and and not
have to worry about, oh, my copper length is is too long
here. Well, that's the risk that I
want. That's fine.
You know, if I want to hedge outcopper, I'll short a copper
(33:08):
contracts, which you may not be able to do at a multi manager.
Maybe you have to, you know, force a copper like company
short and you know, all the copper companies are cheap then
like that's not what you want todo.
So yeah, it's really just havingthe flexibility to take the
(33:29):
actual risks that you want and not forcing risks that you don't
want. You mentioned a change in
liquidity over time. How else have you seen markets
change over your time participating?
The crowdedness aspect has entirely changed.
I mean, when I entered the business in 2007, that was not
(33:49):
really something that you even thought about.
I would say really 20/13/2014 iskind of the first time that we
really started to notice, Hey, you're getting like these weird
gross down events where I don't know why this is happening, but
positions that you like, I like,I mean, we all like those like,
(34:11):
why is this happening? And like so that, that I, I
think is, has been one of the biggest changes.
And that's just been a result ofwhere the capital has gone and
the different makeup of the investor base trading in the
stocks in our world where thingsare not as liquid as they used
to be 10 years ago. You throw in the fact that even
(34:35):
more smart people are looking atthe same ideas that creates
dislocations. Do you think those and mining
markets are substantially more inefficient than other markets?
More inefficient, yeah. You know what's interesting is
that on a very simplistic basis,these names always like for most
(35:01):
of a period of time, will alwaysjust follow what the commodities
doing. There's very little, unless
you're talking about a developerwhere you're actually getting
NAV accretion in it. Most of these things just follow
what they should be following and then you get periods where
(35:22):
that just stops working and you look at this and think, well
this is going to correct itself.Like if a copper company hasn't
done it, nothing bad has happened and it is dislocated
from what has happened with the copper price times it's
projected production. Why is this happened?
(35:42):
And yeah, you get periods where the market just misses things
more, overreacts to things. I think about gold fields last
year with Solaris Norte and their pipes rose in Chile, the
stock was down like 15%, like 3 billion or something like that
got taken off the market cap on something that was going to be a
(36:02):
handful of months delay. Yeah.
And you know, based on what theytold you, like, OK, you lost a
couple months, you got to lose acouple $100 million in gold
sales. Well, the market just took you
down like $2 billion. Clearly we overreacted here.
Like what, what are we doing? And, you know, within two weeks,
(36:23):
stocks right back up 15%. So you tend to get periods where
you get a lot of overreactions And, and it's it's really is
this going to happen? You know, is it going to correct
tomorrow? Or in the case of Ivan, is this
going to take a couple months? You just don't know.
I can't let you go Dave, withoutasking you about maybe some of
(36:43):
your more recent views you've been fleshing out lately.
I spoke to you on the phone maybe like 3 weeks ago and Tommy
Sigma was looking pretty cheap where it was and then within a
week it had popped 20%. So I really just.
Need a tip. The yeah, I mean first Quantum's
working a little too well at themoment.
Sigma, I still think is interesting in how you structure
(37:04):
the trade as what I was trying to do was sell a long dated put
at $3, which was going to give me the right to buy it at like
260 a share, which is essentially going to be you're
going to be buying it at 580 spot.
And then taking the proceeds from selling those puts to buy
(37:25):
calls at 10 thinking all right, if you go back to some sort of
cost curve at 800, so it goes back to the 12.
So that to me was like an interesting way to just think
about how you could maybe structure a bullish lithium that
even though I'm not bullish on lithium.
(37:49):
The name that I think is most interesting right now, which
honestly I hope is kind of pay off before this podcast gets
released, is Ramaco, which is a little met coal producer in West
Virginia. But they're sitting on this rare
earth project in Wyoming, which is in carbon or it's not in Hard
(38:10):
Rock. They think it's a lot easier to
process. They are waiting to release a
report from floor. It was a pretty good indication
that the guy who was running critical minerals for Floor
resigned and joined Ramako to run this project, so I'm
assuming that the economics of the project are pretty good.
He also left Australia to move to Wyoming to do that.
(38:34):
Based on the resource base that we are put out for the project
is you, you're pretty equivalenton size as MP now.
I did really enjoy the rare earth pod you guys did and talk
about the trouble with the processing and what not.
You are paying a very small amount.
(38:55):
I mean the market cap for this company's gone from 500 when I
got into it was probably like 650 now on an equivalent basis
to MP right now because M PS valuation is absolutely absurd.
This project is worth like $80 ashare on a $12.00 stock.
The base coal business is worth like 9 at the moment.
(39:16):
Highly asymmetric. It may not work at all, maybe a
total dud, but they are going tobe releasing that report.
They're doing a ribbon cutting ceremony in a couple weeks with
a bunch of federal officials. 2 months ago now, Joe Manchin, who
was AUS senator, joined the board of the company.
But it's an interesting idea. I don't know that's going to
work, but. The only person that's pitched
(39:37):
away, I'm in cold stock as a as a rare ass like asymmetric
trade. But it's kind of funny because
these cold guys must get like rare FOIMO, like they want a
sexy commodity because like Whitehaven was a top 20
shareholder in Brazilian rare earths IPO.
Yeah, I don't know. These cold guys just want to be
relevant and important to the politicians.
(39:59):
You know, they got to do something.
Yeah, hopefully it works. Dave, this has been been
fascinating and super insightfulinto a world we don't understand
too much about, so thank you forsharing your time with us.
Yeah, of course, that was helpful.
Thanks so much mate. Awesome.
How good was that mate? I was stoked to share that
conversation and thanks again toDave Sparks for joining us.
(40:20):
A massive thank you also to Inter Mining Services, Rounded
standard ground support and Cross boundary.
Energy hoodoo hoodoo. 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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