All right, money miners, we have a, we could chat to share with
you today with none other than Dave Franklin.
So a lot of the money miners would know Dave, he runs the
Argonaut Natural Resource fund. And why I think we both are very
attracted to him mate, is that he has this investment
philosophy that is very similar to to the two of us.
There's there's parts of that that really resonate with the
the two of us and. What is that?
The the phrase to capture it best is not compromising on
value as well as sort of getting in the weeds on companies
running up through the the ramp up cycle, understanding the the
cost curve really well and trying to be disciplined
throughout, which is something I think we can we can all learn
off. And here we go.
Let's get to it, Dave Franklin. This is suddenly not a stock
pickers market again. What are you making of it?
Yeah, look, well, I think it, it is always a stock pickers
market, right. So I think there's times where
where there's, you know, commodities and resources is
generally running, but there's times like now where it's pretty
tough and and really you got to sort of eke out the the
opportunities as you find them. So you know as, as, as you guys
would know, we're high conviction.
So typically we have a large portion of our portfolio in in
the top five or ten stocks and that's that's where we're at now
and we think we'll do well from that.
What are you making of the the broader macro environment?
Take it anywhere you want. The trade war.
China energy commodities. Yeah.
Well, I think the two the two places you got to look what's
going on is, is the US and and China.
And maybe starting with China, the way I look at it is they're
going through a transition much like I think the US is going
through a transition, but but it's a bit different.
I mean, what's happened with China in the last five years is
firstly, they locked down their population for three years
roughly with COVID. And then when they let them out,
they then slam their wealth by crushing the, the property
market. So, so you had a, a population
that really didn't want to spend money.
And now I think the Chinese government is realizing that
their next step of growth needs to come from domestic demand
and, and getting their population to spend.
And, and it's, it's easier said than done, right?
So they've done a few baby steps on the stimulus side, but really
I think what you need to see is some major stimulus.
And I think that'll be one of the key drivers for the resource
market. Now, having said that, I think
they're also stepping back a bit and just saying, well, what's
happening in the US and before we make a big commitment, you
know, let's see how that that that goes forward.
So I think China's a really interesting position and I think
they're very committed to 5% growth.
And particularly where they're under pressure from the US, I
think they'll they'll really stick to that.
So I think you will see stimulus.
Do you think, do you think that stimulus is, it takes the shape
of different types of stimulus that we've grown accustomed to
in the past given yeah, a big kind of detour from the the risk
associated with property stimuli.
Well, I think you're right. I think what they need to do is
they need to put more money in the hands of the people and get
them spending. And you know, it's the other
side of of what Trump is is talking about now, right, Where
all the products that are being reduced in China, you know, the
vast majority is being being exported and sold into other
economies where I think the Chinese population needs to step
up and the economy needs to be a bit more self self perpetuating.
So, you know, I think that's I, you know, I think that's going
through a transition and I think that's going to be positive for
resources. It's it's like a it's a catch
22. We try in some ways because in
order to have have private investment or firms investing
well, there has to be kind of sufficient profitability for
them to make investment. Obviously big savings is a is a
phenomenon in China. Yeah.
So how do you, how do you incentivize all the investment?
Well, one of the things that counteracts that is the massive
ambitions to to have overcapacity that kind of
reduces the firm's profitability.
Do you envisage them actually rolling out some supply side
policies to maybe reduce the, you know, the overcapacity
things return firms to profitability and that then you
get, you know, firm profitability, then you get
confidence and that kind of thing?
Or do you think that that will just continue in their
endeavours to that? Yeah.
I mean, I think it's a bit of a mix.
Do you know what's, as we all know, what's different about
China is they take a longer term view and the, the EV market and,
and the general production of, of batteries is a really good
example of that where they take a long term view.
They devote a lot of capital to it.
And, and over time they have have dominated that market.
And you know, we're talking to someone yesterday and they're
saying the cost of a, a battery now is essentially halved in the
last 18 months. So they, they reduce their cost
of production so much so then they can dominate the supply
globally. And I think that's, that's,
that's, I think that's part of their business strategy.
You know, rarer, if you look at how that flows through to
commodities, you got lithium prices down the dumps and rarest
prices down the dumps. And that's really a function of
that. They're just, they're driven
prices down by dominating supply and then that flows through to
the to the to the end products. Do you do you think Australia is
in a is in an extremely difficult position and and how
do you think it plays out like our security partner in the US?
Yeah, now by far largest customer in China that that
seems like a head on collision that's still on the horizon,
but. Well, it's a precarious position
for Australia where you're kind of walking that tightrope
between your biggest customer and your and your, yeah, global
economic partner, I guess, and security partner, yeah, so.
We Start learning Mandarin. Yeah, you know, I'd like to
think. They've been accused of being on
the Chinese payroll, so. Driving you below there's.
A middle ground there. You know, the good thing is
we've got stuff that China wants and we've got stuff that the US
wants. Probably what we need to see is,
is is strong political leaders that take advantage of of that
situation, right, I think. In a while since we've seen one
of them. Well, exactly, exactly.
But it's probably worth just touching on the US on the other
side of China. And you know, like I'm not the
greatest fan of of Donald Trump, right, But and he's a polarizing
figure. And, you know, I think the
frustration we're all seeing in investment markets is he has a
very chaotic management style, which means that volatility is
going to follow him, you know, while while he's in office.
But if you look at the US and where the US was heading, it was
stagnating. And there's some issues they
need to address. And the, the big one is, is the
debt position. You know, it kept getting
bigger. Their, you know, their trade
deficit was, was a worry. If you look at what they did on
energy policy, the energy prices have been high because of the
energy transition, which was perhaps managed poorly.
You got a bureaucratic or, you know, cost of government
expense, which was out of control, you know, planning and
regulation very difficult, You know, whether you're building a
house or whether you're building a mine, right?
Just the time frames blew out. So what you needed is someone to
come in and shake all that up and say, look, you know, we keep
going down this path. We're going to be in some
serious trouble. And, you know, I think the the
positive is that, you know, when you strip away Trump and, and
his style is they're addressing some of the issues.
Now I'll come down to how will they execute?
And you know, you have to say with Trump in control, there's
always risk around that. But he does have some good
people around him. And I think, you know, the
market is gaining confidence as Scott Bessent has, has has taken
the lead in a lot of those negotiations.
And even if you look at things like defence, the fact that
Germany is now stepping up and probably the rest of Europe will
step up and and cover a lot of their costs, that's really given
their economies a bit of a kick as well.
So, you know, I think there is a silver lining there, if we can,
if it can be managed, can be managed properly.
Yeah, yeah, absolutely. They've, they've got their work
cut out for them, right. And there's, I mean, there's,
there's heaps of ways we can kind of take this.
You have a a portion of the funding in gold as well.
And that's been a a huge benefit of, yeah, what what has
happened. How do you see that playing out?
Yeah, well, I mean, you know, it's, it's gold's time in the
sun, right. I remember when we, we started
the fund five years ago and, and as we've talked about before,
the way we start is what do we think of the key resilient
themes and our impact on, on the resource sector.
And the two were sort of energy transition and electrification
as one and the other was geopolitical risk and a view
that, you know, the world is going to go through a period of
increased geopolitical risk. And, and I think that's really
played out and they're probably still the two key themes you'd
be looking at. You know, what's, what's the,
you know, what's going on with gold is, is a whole lot of
factors. One is 1 is globally, there's
there's plenty of economies and plenty of countries that don't
really want to hold U.S. dollar assets.
And so they're looking for an alternative and that's been a
driver of central bank buying over the last, you know, five
years in particular, you've got, but then you've also got, you
know, other factors like interest rates near their peak.
And, and with the geopolitical situation that we've just been
talking about, you know, people want to hold gold as a as a
store of value. So there's still a lot of key
drivers there for for the gold price.
It's obviously had a big run over the last couple of years,
but I think he's still going to have it in your portfolio.
Yeah, yeah, absolutely. And, and to go back to the the
geopolitical environment between China and the US and then, you
know, US and the rest of the world, really we're at a pause
technically with this tariff situation.
But the market has really taken to heart that this pause will
continue on indefinitely. The market is now above what it
was before Liberation Day. Yeah.
Do you think this comes back to to bite the market soon or do
you think Trump trying to kind of forgets about this after
having seen what happened to the market?
Well, I think he was certainly scared, you know, mid-april when
the market was really taking. And I think when when, you know,
bond yields started to go up rather than go down and you saw
an outflow of money from the US, it really questioned, you know,
EU s s position as a, you know, as a reserve currency.
And, and so I think I think he's going to be aware of that.
But, you know, I think Trump's style is go hard and go
excessive and then sort of backtrack and come up with a
deal that that you kind of hope to get.
And I think he'll probably end up giving away more than than he
wanted to. So I think he is going to be
cognizant of where the market's AT.
And I think people like Scott Percent, who I who I mentioned
before, you know, I think the best description I heard of him
is he's kind of the adult in the room And, and I think you kind
of need something like that. So I think you'd have to say
there's more volatility to come, right?
I think just to assume it's all good from here is, is a bit
unrealistic. I hope it's, I hope that is the
case, but but you've got to expect volatility.
So the way you handle that as a as a fund manager, I think is
you kind of prepare for the worst and and hope for the best
and you can structure your portfolio to reflect that.
Yeah, Yeah. You've also got a higher than
normal cash position from from what I could last see.
Is that, is that still the case and what's your thinking about
that? Higher than normal cash
position. That is what miners have after
they just called KCA. In fact, mate, all this time
we've been telling people to just call KCA.
We've never actually just called KCA ourselves.
That was until today. Watch this, we got ya.
What is the differentiator of of KCA versus anyone else?
For me, it's the flexibility and the ability to to want to make
our client more successful as well.
Why? It's just getting the shift up.
Yeah, like, and it's making like if they've got a problem, like,
what's the issue? Tell them with the problem and
if you need it, we'll just do it.
And we'll try and find a way to make it make it work.
And I guess we'll look at everything.
When like when you say a client's got a problem, what
does a problem sometimes look look like for a client?
A problem could be like a piece of equipment.
So for example, like the client rang up the other day and said
they need a 6020 truck. You know, we've got a standing
truck like, well, it doesn't, you know, it's not going to suit
the fleet. It's a hire truck.
You know, we don't have any parts.
We don't have people trying. I'm now trying to source a 6020
truck because I want to deliver to the client.
And obviously it's a, it's a period of time that we can, we
can justify. It's just making that happen.
It's not even in fleet. But how do we make this work for
the client and work for us? I'm glad that I just called KCA
today. And you know what, anyone that
has your mobile number, it's in the show notes.
They can also just call KCAJD. This is this is what you get
when you just call KCA. Call KCA.
Well, you know what we do in periods of uncertainty, we've
got a couple of levers that we pull.
The 1st is we say well yes, we're entering into what we
think might be a more volatile time is we try and reduce our
exposure to small cap stocks and we increase the bigger cap
stocks and you know, and really a focus on quality and
liquidity. The other side to that is, is,
is cash. So unusually, we can go to 30%
cash in the portfolio and, and, and we're at 20% now.
And that's just a reflection of, you know, we want to be able to
move quickly, either invest more or, or, or take more out, you
know, because you know, the way I look at investing in the
resource market is the cyclical market.
And there's obviously also these geopolitical type factors that
that impacted when the market's rallying, you want to be a
relative investor and when the market's falling, you want to be
an absolute investor because no one likes to lose money.
So you know, you kind of need to plan your portfolio construction
around that. What it's such an interesting
point when you think of the, yeah, the portfolio pressures of
a resources focused by management because resources by
definition super cyclical, yeah, you need to have endurance
through the cycle. And oftentimes our like
resources, multiple resources are hyper correlated because
they're different by things like club demand, China, yada, yada.
Yeah, so how do you actually have absolute return in times
when? There isn't, there is going
down. Well, I mean, I think the
ability to switch between commodities is is important.
So as you're saying, a lot of commodities are are correlated,
but but some aren't. So number one is, is to try and
target those commodities that are looking pretty good.
So for example, gold at the moment is, has been a good place
to be and that's obviously contributed to, to there's a
portfolio of results. The second is stock pickings.
You know, as we started stock pickings always a part of what
you gotta do, right? So in, in any sector, in any
commodity, there'll be those stocks that are undervalued and
maybe misunderstood by the market.
And if you can, if you can get some gains out of those, then
that's really good. And then probably the third area
is really that quality liquidity position in that if you take a
view, the market's going to fall.
And while you can't totally avoid that, you can be in the
kind of companies going to that are going to fall less than the
rest of the market. So, you know, for example, you
know, more recently we've increased our exposure to BHP
and Rio, which really we don't normally own because we think
there's better value out there. But what it does in this kind of
market is it provides resource sector exposure in a pretty
general way. But your pseudo cash, yeah, but
exactly optionality. But if the market rallies,
you're going to, because it is the index essentially you're
going to keep, you know, you're going to get a benefit from
that. But if it falls, it's going to
fall by less. So it's really sort of managing
all those, all those levers. Yeah.
You made the comment when we last spoke about not
compromising on quality. And I think that is what you
just said in in different words. But I'd love to hear you just
speak more about that because on the surface sounds easy,
obvious, understandable. Yeah.
But to actually stick to that through, through the mania times
when everything's running and, you know, be rewarded, yeah.
Or when it goes down Is is not that easy?
Yeah, you know, we're always looking.
So how do you, how do you define quality?
You know, I think there's a number of different ways in
resources you, you know, you, you got to have a really good
understanding of costs, right? You know, what is the average
cost across the sector and how does the company looking at rate
on that sort of, you know, on that, on that, on that line.
So I think that's number one. I think increasingly and as you
guys know, you know, John McDonald is working with us,
he's been with us probably getting on to a year now.
And he's added a lot of value in, in how you should look at a
resource company. And, and really what it comes
down to is what's the free cash that it generates and what's the
value of the reserve and, and, and, and the current reserve and
what the reserve might be in the future.
And I think they're really good disciplines because if there's a
negative with the reporting of of resource companies, you know,
the quarterlies, which I think really drive sort of the the
short term market reactions, you know, they often they don't tell
you what you want to know, right.
So, you know, all in sustaining cost is a is a, you know, is a
pretty tangible or intangible kind of thing in that I.
Think I heard Johnny Mack ever use the word all in sustaining
cost. Yeah.
So it's all in cost. So, So what we increasingly do
is you kind of say, well, what's the movement in cash?
And I think I've heard you guys talk about that as well.
What's the movement in cash and should there be any adjustments?
And and then look at sort of free cash yield or or you know,
a, a multiple and gold's a really good example of that
because what you've got is, is you've had this sector just
rally where the gold price is now sort of approaching.
It's just over $5000 Australian and, and, and costs have sort of
moved up a bit, but the margins are increasing.
But the other side to that is, is equity prices have moved up
as well. You know, so if you look at
well, how are they all looking on a free cash flow yield?
There's a, there's a big divergent and some are fully
priced again because the share price is kind of matched to
where their free cash is that. The the thing that'll will
separate them is what return they can generate on that free
cash as well. Like yeah.
And that's what they do, part of it.
Yeah, exactly. And that, that's the yeah,
that's the uncertain thing. Yeah.
And exactly. The other thing I think in these
kind of markets and gold's a really good example is, is I
think that the tendency is to move away from the really good
quality companies because you think they're fully priced.
And then you go, yeah, and you think the lesser quality
companies a better value or cheaper.
But you know, when you factor in the quality difference, perhaps
they're not right. So, you know, so one company
that I think is a real stand out is is Genesis, where I think
you'd look at and go, shit, it's had a huge run and it probably
does look a bit fully priced. But if you look at its free cash
flow yield, it's, you know, it's at the top end, which for a
company which came through what it's been through, yeah, is
pretty impressive. And and its reserve life is also
very strong. This is probably an appropriate
time to do a Ding, Ding, Ding value GC, not just on Genesis,
but she's got money in your fund.
So yeah, get that out of the way.
Every time I've looked at Genesis, it's always been too
expensive to buy. Yeah, you know, but yeah, it's a
company you think are on the management team.
They'll generate value, they'll allocate capital effectively.
And I feel like an idiot every time, you know, because it's.
Well, and we're, we're the same you kind of think and, and I
think the difference is really in the last quarter in
particular, free cash was really strong, right.
So, so, you know, the good thing with with the team there is they
kind of say what they're going to do and, and, and and and they
deliver which which is which is, you know, pretty rare really.
Trav, are we talking about Genesis or?
Grounded here. There are so many parallels.
JD Grounded Group is the Genesis of mine site accommodation.
This is how I think about it, just like Genesis.
JD, on first impression, you think the tender is too
expensive, right? They're on the pricey end, but.
You think the lesser quality companies a better value or
cheaper, but you know, when you factor in the quality
difference, perhaps they're not. Perhaps they're not indeed,
Dave. You have to factor in the
quality difference, JD. It's the quality that matters
with a mine site camp to make life better.
And does the site have amenities that make it enjoyable?
Do the rooms have a bit more space in the bathrooms?
Feel like a bathroom? These are the simple things, but
they go a long way because if you factor in the quality
difference, like Dave says, quality accommodation equals
happy working and more productivity.
Importantly, better people want to come and work there too.
You know my favorite thing about Paul, Natalia and the entire
team are grounded though JD. Please tell me.
They kind of say what they're going to do and and and and and
they deliver. Back to Dave.
How does jurisdictional risk factor into this and does that
ebb and flow with with the market times or have you just
got a completely different structure to?
Well, so our portfolio now, so we, we, we monitor the
proportion of the portfolio where the projects, the
underlying projects, you know where they're located, right.
And, and typically we have over 90% of the underlying projects
in the companies we own in Australia or North America.
And it, it, it doesn't vary a whole lot.
We will go into high risk locations, but you know, we're
very cognizant of of the risk. So we do own a little bit in
Brazil, some of the rare earths own it, own it clays there.
I think that's kind of the best, the best place to play it.
But but if we don't need to take that risk, then we won't.
So gold's a good example again, I would need to be convinced to
buy, you know a W African gold producer just because there is a
lot of choice in Australia. And so why take that where
particularly in the portfolio, it's kind of in the portfolio
where there is that store of value and and defensive element?
To expand the conversation on portfolio makeup, if you like,
sort of spoken about jurisdictional risk, touching
on, on commodities, you mentioned holding certain
commodities, AG gold as a kind of safe place when when things
are volatile. Are there other sort of
commodities or places you kind of hide if you like, other than
obviously you mentioned going to bigger names as well when times
get tougher and in anticipation of tougher times?
Yeah, so because you can't put everything into, you know, in
into those, into those area, you can't put everything into gold
and cash. So we do probably.
The other thing I would say is, is in volatile times, you know,
to me, the most important thing is to have a plan, right?
So what I'm going to do if I, if the market starts to turn down
or if I think the market's going to turn down, what you learn
through having those plans is that they don't always work
right. And you kind of got to reassess.
So, you know, what was interesting in, in leading into
April 2 was, you know, we'd constructed the portfolio in a
way that we thought would be defensive, but and so we had a
reasonable amount in oil and gas, in particular oil and gas
services. So we had whirly, which we
thought would be defensive and we had amplitude energy, which
East Coast gas should should be pretty immune for what's
happening globally, right. But I think both those fell by
15% in, in the month, right? So, so the best laid plans don't
always work, right. But I think the key is to have a
plan. So, but that's what you're
looking for. And so a good example would have
been uranium, uranium stocks actually performed really well
through April. And that was on the basis of the
spot price starting to kick up would be closer to to the
contract price. And and so, you know, so we
benefit from that. So you're trying to pick out the
commodities that aren't quite as aligned to global growth or, or
wherever that issue might be. Yeah.
You, you, you spoke of the fact it's always a stock stock
because market it's just, you know, you're always trying to
find value, even if it takes time for that value to be
recognized by the market. Your uranium exposure is next
Gen. Yeah, yeah.
World's best undeveloped uranium deposit.
Yeah, Yeah, Uranium as a sector, I think it's really interesting,
right, because what you've got is a small number of investable
companies and it moves in and out of favour.
But when it's in favour, you got a whole lot of money moving into
a small number of companies That forces up their values.
And I think particularly with the Australian listed companies,
it's, it's very, you know, it's hard to find compelling value,
right, Because typically their costs are higher and their
volume production volumes either ramping up or, or in the OR, or
what they're planning are relatively low.
So it's difficult. So, so next Gen.
I think is a stand out in that, as you're saying, it's a
fabulous project. It looks like it's not too far
away from final approvals. It's grade is is exceptional.
And value wise, I still think it looks all right.
I mean, I was doing a bit of an analysis the other day.
If you look at Gazette a Prom and Kamiko, they both produce,
you know, attributable production pretty similar,
somewhere around £25 million per per annum.
You know, can bounce around a bit, but that's it.
You know, next Gen. is going to be producing I think £29 million
for its first five years. Camico's market cap in
Australian dollar terms is about 35 billion, Next Gen. is 5
billion and it's probably got 3 billion to spend.
So, so I think there's value there.
Is that discount too big? It probably is.
But as we know, they've also had a few sort of governance issues
that have have probably had an impact.
So, so I think you, you know, we, we like it, we think it's
the way to play the sector. It's, it's going to be low cost,
it's going to be big volumes. And I think I'd like to think
that management have learnt from how the market responded to some
of the decisions made. Won't do that again.
Yeah, I think I did hear about some of that stuff on the
development of the the project. They've got a new government in
Canada now, but they preemptively took some steps it
seemed on on the surface, on the outside to, you know, make
resource development a bit easier to make there be a bit
less friction between provinces, states in in Canada.
Are you, are you more constructive on a timeline of
them actually getting that through?
Well, yeah, I mean, I think there's a couple of things, you
know, and it probably, I think that, you know, what the US has
been doing is probably a factor in that as well with Canada
going. You know, we we need to, we need
to stimulate our economy and one day, one way to do that is to
stimulate resource sector investment.
And I think much like a lot of the Western economies, they've
been slowly moving and and bogged down in regulation.
So I think, I think you're right.
I think what's happening in Canada is what we're hearing is
at the moment there's a system where you need provincial
approval and then you need federal approval and there's a
lot of duplication and and time frames blow out.
I think where it's heading is that it will focus very much on
the provincial approvals and and maybe won't require a federal
approval. The positive that we've seen
with both Next Gen. and also Denison, which is probably the
other uranium projects nearest to production is there's been
dates set for the final approval meetings, which around for
Denison around the end of the calendar year and for for, for
Next Gen. 2 meetings, one in November and one in February.
So I can't see any reason why we shouldn't get final decisions on
both those projects in that time frame.
So for the first time in a long time, it's been locked in.
I think it was probably 6 months behind where everyone thought
for both those companies. But at least there is a date.
So I think it's full steam ahead.
Now we're talking about individual companies as well,
Dave, let's jump back to gold for a moment because great land
is a big part of the portfolio and yeah, not the first one.
You need to have that as a sort of core part of the portfolio.
Not yet listed in Australia, but they've had a terrific run.
What are you making of sort of value in the stock and the
company's prospects going forward from here?
Yeah, it's, it's, it's been a really interesting story.
And I think what's been encouraging is that the the, the
economics and the, and the, the story behind it has got better
since it did the deal. So, so basically Greatland
listed in London owned 30% of Haveron, which is a, which is a
fantastic project. The other 70% was owned by
Newmont and Newmont also owned the Telfa mine and mill, which
which is not too far away with with new Crest getting taken on
Newmont, Newmont decided to sell that asset because Greatland had
a 30% interest in Haveron. It kind of got first dibs at at
looking at it. So so they bought it for 750 mil
and to do that they need to to do a discounted capital raise.
I think it was at a 30 or 40% discount.
That was a record to buy into. And and so that was the
opportunity at that point. There was still a lot of talk,
you know is tell for an asset or is it a liability right in that
it's a big mill and take a lot of feeding.
But immediately you when it became like clear that they had
the stockpile build up over the duration of months and months,
Yeah, yeah. Then you.
Yeah, you probably. Yeah, that's what you bought.
So I should have you pieced together the fact they paid back
in no time? Well, exactly.
So so you know, jumping to today, right, They've owned it
for just under 5 months. So they paid 750.
It's generated something like 300 million in in free cash and
that's cash that's sitting in the bank.
And with a bit of drilling, they've increased the reserve at
Telford to 750,000 oz and really we'll continue drilling and I
think, I think they'll continue to increase and they've still
got the stockpile there as well. So I think that's you know that
so, so you know, they're going to they're going to pay their
purchase, probably they're going to get their purchase price back
in cash within 12 months, which will then give them something
like a billion dollars in cash, which will help them develop,
develop haver on. And haver on is probably, you
know, like it's, it's probably been missed a bit by the market,
but I think it's a very high quality asset.
It's going to be very low cost. It's probably this of a you
know, of a scale of probably less a scale than than degrade,
but quality of resource, it's it's right up there.
So, so at the moment, very few institutions own it.
It's not really in any indices. It's going to list mid year in
Australia. And on my calculations, it's
still probably the the cheapest quality gold stock you can own.
I think you know if you take the, the free cash generated in
in March, in the March quarter and you annualize that you're
looking at a 30% return free cash yield and a big resource
base. Yeah, it's, it's fantastic.
It's, it's, it's remarkable how quickly the market's perception
has has changed of the company of the acquisition.
How about that that little piece.
One of the other concerns was that the stockpiles working
through with have your own only coming online.
Yeah, 2 plus years, yeah, they've tried to address that.
Are you have your concerns been relieved on on that gap or?
Yeah, I think, yeah, absolutely. So.
So they haven't only been putting the stockpiles through.
They've been doing some mining. And I think indications are
there's a lot more ore at Delpha than than perhaps marketed and
understood. And the drilling success has,
has, has been very, very good. But you know, with, with, with
it only being early days. And as I, as I mentioned, they,
you know, they added 750,000 oz recently.
So I think that you're right. That was really the question is
can they main production and something like 300,000 oz
between now and when everyone kicks in?
And I think they can. I think it's a signing story.
Would they go shopping in in the area?
There's a couple of juniors. Look, I don't think they need, I
don't think I need to do anything in a hurry, and that's
probably not what those juniors want to hear.
So I think ultimately it makes sense to add those in, but I
don't think you'll see it happening.
Yeah, Speaking of shopping, what's going to happen in
Bellevue? Bellevue, I think they're in
penance mode, aren't they? Right.
So I think they've done the right thing and they need to
step back and just reset the business.
You know, I think Darren's a good guy and I think he's
recognized that what he needs to do is just reduce the production
rate, deliver on that, keep his costs down, start to generate
free cash. He's pushed out the hedging a
bit. Give him a bit of leeway to
generate some cash. So it's been a frustrating time.
We haven't really been an investor in Bellevue since,
since it's commissioning phase. Do you?
Think they get bought? Well, potentially, yeah, I think
they probably need to demonstrate the operational
capability of of the mine and business, but they deliver on
what they're saying. So the good thing is now they
deliver on what they're saying, then they look cheap, but they
need rebuilding credibility. Yeah, maybe we move tax to to
copper. There's a few name stays of your
of your portfolio over time like kept tabs on it in the copper
space. It's been, it was acquisition
Corp and developed consistently. Yeah, both both run by kind of
proven, you know, stewards of capital in, in mining.
Yeah. What's been the enduring
rationale? Well, we like copper.
If you if you look across the commodity landscape, copper is a
real stand out, right? And, and we're kind of looking
through the noise a bit. Obviously a big driver of copper
as a commodity is what's happening in global growth.
And we've got, you know, the uncertainty with with Trump and
China and all that, right? But we just think copper, it's a
big market. It's hard to manipulate a lot of
demand drivers, constrained supply.
It is a commodity that you want to get exposure to and it's not
easy to get good quality exposure.
So Mac, we like, I think Mick's done a good job in taking an
asset that hadn't been well run. Now we had to fund it in unusual
ways at the time to get hold of that asset.
So if there's a negative, it's, it's you know, they had
mezzanine debt, they had streaming and they got royalties
and all this kind of stuff that complicates the the story.
But at its core, I think he's done a very good job in bringing
down operating costs, productions heading towards
50,000 oz per annum. The mayor and mayor and mine I
think can be a bit of a kicker on top of that.
So, you know, I think it's, it's probably marginally underpriced
at the moment. So really you need a kick up in
the copper price to really get it moving.
But you know, it's a high grade mine probably probably, you
know, arguably one of the highest grade outside Africa.
So, you know, we're happy to be there and and what you want in,
you know, in what has been probably a difficult project is,
is high class management, I think.
Do you think the like, is it as easy as a copper price going up,
kind of high leverage, yada yada, Lots of talk because I
don't want the copper price up too much because then the
contingent copper price payment kicks in as well.
There's a sweet spot where you want it to be high enough, but
not. Yeah, not too high.
So I think what you're saying is they're bringing, they're, you
know, they're bringing down their debt, which I think is
important and you know, refining the mezzanine debt, which which
I think is all important, so. There were rumours that Harmony
was was interested. Did you did you hear that too?
Yeah, I didn't hear it was, but but yeah, yeah.
So we'll see. So develop look, we really like
it and and we did a site to it at Woodlawn last year and it
highlighted a couple of things. One is I think the scope for
that asset is, is more as far as production and and mine life is
probably greater than what the market's expecting.
But it also just highlighted what good management can do, you
know, to have a good motivated team.
And if you're going to back some of them resources, I think it'll
beer Mont is is good guy to back right.
So I think that's really interesting in that, you know,
ideally develop should come into production this sorry Woodlawn
should come into production this quarter.
I think even at current copper prices, it's going to deliver
and zinc prices is going to deliver pretty strong cash
flows. It's looking to sell a 20%
interest in the mine, which you can do that somewhere around NPV
is, is really going to underpin the value of the broader group.
And then you got to sell the springs and you got their mining
services assets, which which I think also look good.
So had a big run and I think it's probably still mildly
underpriced and needs to deliver on the production and perhaps
that sell down. But I think it's a stock that is
going to emerge as a as a much bigger company over the next
five years. On the mining service part of
the business, obviously Bellevue's had a pretty
tumultuous period, Yeah. Do you think that, I mean
there's this folks about the contract there, but do you think
that continues? Do you factor that in as
continuing for for quite a period or what do you think?
Yeah. Look, I mean, you never quite
know in a situation like that, you know, what what led to the,
the Bellevue issues. But certainly the, the, the
feedback I get is it wasn't really the develop contract that
that was a major problem there. So I think they're good at what
they do. I think so.
You know, I see Bellevue ideally the Bellevue asset recovering
and and develop remaining there as a as a contractor for a long
period of. Time just bring the the mic in a
bit. The noise get cuts out when you
speak softly yeah bring it closer towards you.
Yeah. Oh, beautiful.
Yeah, it's it's interesting, isn't it?
I mean like the typical pathway you, you get close to
production, you start producing rate rewrite and and do you
think it's just effectively a matter of time where the market
starts to believe with lawn is is capable of positive free
cash? Well, I think so.
I mean, I think if you look at its recent share price
performance, the, the, the market's probably already jumped
to that conclusion. Yeah.
And I think that's a reflection on, on on how people assess the
risk as it moves into production.
I think they're saying this has been largely de risk and
obviously they didn't have to build the plant, they just need
to fix it up. Yeah, which which obviously is a
the benefit. Have you got on, on that
specific point there of investing in companies that are
part of the, the rewrite, that sort of part of the Lasan curve,
if you like, you know, just speaking as, as the novice
mining stock hunter, what are the sort of key, the key bits
lessons you can kind of share in getting that right?
Because it's clearly something you've done with a few companies
now and making sure you, you catch that wave in in the right
way. And yet you manage the risk.
And there's sort of unobvious parts of that that that have
really stood out to you of your journey.
Yeah, it's, it's a, it's a good question.
Because you know, if you think about a Bellevue or you think
about a line town or you think about Woodlawn, I think they're
all really interesting and all really different kind of
outcomes. You know, with Bellevue, we
always had some, some concerns about the resource and how easy
that would be to mine. And so we held it up until
commissioning and then said, well, we're just going to stand
back and see how all this goes. And, and, and that's obviously
worked pretty well, which was good.
Lion Town we probably had we had some concerns as well, right,
because an underground lithium ion or spodumene mine of that
scale was, was challenging and then the whole processing side
is difficult as well. So we did the same thing.
We stood back and and watched and and waited.
Obviously the commodity price came down, which impacted them.
But you know, I look back at, at, at, at the at line town and
what they've been able to achieve in their delivery and
it's been first class, right? So, so, so in general, we and,
and then with, with Woodlawn, we probably took we, you know,
we're happy to back management because one is the, the
processing facility was already there.
And two, we knew that management were very good at underground
mines. So, so we kind of take it case
by case. But in general in mining, if
things are going to go wrong, often they go wrong in that
commissioning phase. So if you don't need to be
there, then then you don't be there.
And so it'll come down to valuation.
So if you know, if if you looked at a Bellevue at that time, it
was kind of factoring in and all going well.
So do you need to be there, you probably don't.
So. Yeah.
Has has your view on on lithium equity exposure changed over the
last year? Probably not much over the last
year. Well, the, so the positive is
prices have all fallen further right and so there's better
value there. The issue that I have is, you
know, current spodumain price is roughly $700.00 a ton US and I
reckon most of the major players.
So so firstly, it's not a market where you want to be looking at
2nd tier assets. So if you can say, you know,
Bill Bro Bodgina, you know, Igo and Lion Town I'll probably put
up there because, because they've done a pretty good job.
But I reckon all those excluding green bushes, IGO, you know, I
reckon they're, they, they're all in costs are probably
somewhere around 8 to $900 US, right?
So what? So what they're saying that
lithium is no one's making any money.
I. Think with IGO you've got like
they're all in cost include Kwinana and they're probably.
Probably the same, Yeah, Yeah. Well, exactly.
So, so so green bushes. I mean, the green, green bushes
I reckon is probably 100 bucks or or more lower than those
others. And it's probably the only one
selling a 6% con and that price is 6%, right?
So, so, so the sector's still kind of underwater.
And then it comes down to well, what's the long term price
likely to be, right? And if you look at most of the
commodity forecasters, they're saying maybe 1200.
Firstly, they're saying it's going nowhere for a year and
then maybe it gets to 1200 and 1200.
If you back calculate and say, well, based on their production,
they still don't look overly cheap, right?
So, but that's the way markets work.
So I think what you'll see at some point you'll see a spike.
I think we're getting closer to the time where you could buy any
of those companies, you know, an IGO, Pilbara or or Lyontown.
Lyontown's got debt, which you don't like.
So it's probably one step behind those others and, and take a
view. And I know the way we often look
at that is to say, look, it doesn't look overly compelling
now, but do we reckon we can double our money in the next
three years? So can we get sort of annual
return of just over 30% per annum over three years?
If you think you can then then then you buy you.
Don't mind being early. Exactly.
For the commodity prices. Exactly because what when it
turns, it turns really quickly. And if you're not in, you miss
out on that 30 or 40% gain. Yeah, you, you point on IG OS
right. Though the good thing about IG
OS, I've got 25% of of green bushes, which is a cracking
asset. Unfortunately, they don't
operate it. But because I think Ivan's
actually done a good job and it seems to me he's adding good
value to that joint venture, but it's all the other stuff.
They got 2 hydroxyl plants that don't work, and they got nickel
business that's pretty rooted, right?
So there's a bit of tidying up to be done there, which I think
he's doing, yeah. Yeah, yeah.
It takes a bit of time. None of this happens sort of
overnight. It's the same with success,
right? Yeah.
There's a notable absence in your Cop allocation.
No sand fire. Why?
We've owned it in the past, yeah.
And value wise, I just thought it was getting up there.
So what Sand Fire needs? So Sand Fire I think's done a
fantastic job, right? So they've bought Mateo online,
they've ramped it up really without a hitch, generating good
cash. They've got their debt down
doing everything. Well, I think the question is,
well, what they need to demonstrate now is how they can
grow the mine life at Mateo and, and, and that's probably the
challenge they've got. So what what it doesn't have is
production growth over above where it is now.
But it's hard to criticize them. I think Brendan Harris and his
team done an incredible job. We have owned it and we sold it.
And if you look back over the last 12 months, we probably
should have held that and maybe sold Mac, right, but on
performance. But it kind of works itself out.
Yeah, they've, they've done a remarkable job and sort of
capital sort of flooding in like you mentioned before in a
different scenario into a limited number of names is
really been evident in, Yeah, in the copper space.
Something we didn't mention before in the in the copper
discussion was the tailwind from TCRC is just dropping off
dramatically. Yeah, I think Mac quoted 15 ish
cent per pound on a sort of C1 basis break kick essentially
from the markdown at the beginning of this year.
Yeah, that's awesome for all of those guys.
Not so awesome for the the folks downstream, but yeah, real
tailwind, right? It's, you're right, it's made a
massive difference. And I think it, it's kind of
stems from a lot of countries saying that you need to, you
need to process, you know, the, the copper before you export it.
And so there's a lot of over capacity, there's over capacity
and, and so prices are coming down.
So I think you're right at a time where every little bit
helps as far as margin, it's it'll make a big difference.
Yeah, yeah. That that trend of countries
imposing that on their their miners is, is a big one on sand
fire. Again, you mentioned lack of
growth. Do you think they go shopping
and you want to kick about some names if you think they do.
Look, they've got, they've got another asset in the US and I
think they're tossing up whether they develop that or, or sell
that. So I think that's a possibility.
I think what they'd like to do is to is to grow organically by,
by building out their resource and reserve through exploration.
It's the cheapest and best way to do it if you can.
And I think they're actively at both their, their assets looking
to do that. But the the, you know, the risk
is you got to find something, you're going to do that.
Yeah, they did a lot of looking at de Grusa and didn't come up
much, but yeah, the brownfields way in particular, given how
hard permitting is all around the world, yeah, they can tack
things on. That'd be fantastic.
Well, exactly. And you'd have to say, you know,
Botswana and the copper belt there is pretty prospective.
So you, you know, you'd like to think that if they, they put the
dollars in the ground, they will be successful.
Yeah, putting to the side of the fact that they are like
relatively fully valued as as as far as the copper kind of
producers go, I always like sand fire as a company entity feels a
lot more likely to me to get acquired than it yes to be an
acquirer of something else because it's, you know, for the
most part a pretty pure black on a copper vehicle.
Lots of lots of companies want more copper.
Lots of gold companies want all of a sudden gold companies have
better script, better capability to buy things.
Sandfire's a company component if you were.
To I think the only the only offsetting factor is, is mine
life at Mateo Yeah, right. So but the, you know, the
Spanish asset is is chugging away and that'll chug a lot
along for a long time. So so I think you know as I
said, I think the management team's done a really good job,
good quality asset. I don't think it's excessively
expensive, it's just not. It just doesn't fit our sort of
valuation at. Nothing really cheap in the
world of copper, is there? Exactly, exactly the the last
thing I want to talk about, Dave, perhaps the most
interesting, actually the most geopolitically interesting is
rare earths. And you mentioned that you hold
some of the, the clay projects in Brazil.
So so why don't we start there? How are they going to fit into
the the piece of this emerging rare earths cost curve?
Yeah, Well, I think rare earths is, is is is a really
interesting sector. And I don't have all the
answers, I don't think, but I think maybe where you got to
start when you look at rare earths, well, there's two areas
you look at, right. What's happening in China?
China totally dominates the production of rare earths and
the processing of rare earths. And, and they mean, you know, it
looks to me like there's been the prices have been depressed
to make sure that no one else gets projects off the ground.
So then you look at Linus and Linus are the you know, the the
ex China major player, really the only one that has really
successfully achieved the separation of of the rarest and
DPR and now moving to the heavies, turbium and dysprosium
and and and created a a business there but.
Even what they produce very often does end up in China.
Yeah, yeah. It's like 1 level of separation,
then more separation. All roads lead to China.
Yeah, yeah. But the issue is, you know, I
think the point though is that their market cap, 7 billion and
a current price, they make essentially no money, right, I
think. They're losing a few $100
million a quarter at the moment, last time I look.
Yeah, yeah. But yeah, it's amazing.
So, so, so you know, how much are you prepared to back the
fact that railroad prices are going to rebound?
So hence we're looking at at Brazil and I think the ionic
clays are, have the have the ability to produce rare earths
at a much cheaper price. And so we're not big there, but
we've got some exposure, exposure through meteoric which
we which we kind of like. And you know, I think it's
progressing it's project. If if you take a view that NDP
or rarest prices are you know 50 bucks a kilo or somewhere around
that 50 to 60, it looks like the ionic clays are the only ones
that, that can compete in that kind of market.
But it's early days, early days. How do you think about the the
technical risk that they need to to overcome importantly in that
processing step? That's yeah, that's the big mark
against all of these names. Yeah.
Well, I think, I think you're right.
It's kind of it's yet to be done.
So I think you got to tread cautiously.
Yeah. Yeah, yeah, yeah, I've got.
Yeah. One, one last question for you,
Dave. Al, it's actually 2 questions.
Yeah, that's right. Biggest mistake the last five
years. Oh, that's a good question.
The biggest mistake in the last five years.
Look, if, if I, if I look back, probably trying to, you know,
changing the portfolio too much, like our out stock portfolio
turnover is not that great, right?
Typically we like to find positions and stuff, but I think
you can overthink it, right? So you got to kind of, I think
what you got to do is look through the noise and say, I'm
prepared to wear a bit of volatility because I know I'm in
good quality stocks and I'm in sectors that I think are going
to do well. But what happens is, you know,
the market is influenced by fear and greed and, and as much as
you try and eliminate that, you know, when, when the market
turns down, often you go, I just want to have a bit more cash.
And you sell something and, and the markets, you know, delivers
a response very quickly where you go, shit, I should have just
done nothing. And April is a good example of
that. You know, we, we performed, I
think pretty well in, in a, in a difficult environment, we could
have done lots of things, you know, you could have shorted at
the wrong time or, or, or stuff. But I look at the decisions that
we made and we only made a couple of transactions.
And if I just done nothing, I would have performed better,
right? So it's probably just saying,
OK, you know, I've done the work.
I know these stocks I'm just going to hold through here.
I bought it because I had conviction.
Yeah, yeah, yeah. Yeah.
And on the flip side of that, the best decision you've made
for the last five years. The best decision?
Chance to talk yourself up. Yeah.
Well, I think, I think probably two things.
One is it's all about quality, right?
If you're buying quality assets, you're probably going to do all
right, as long as you're not paying too much for them.
So it's a, it's a balance between quality and value, but
if you got to choose, you go value.
So never compromise on value in the resource sector.
And the other, the other point is probably how we structured
the fund initially, right? So the fact that we can invest
in small caps and big caps, you know, we can invest in BHP and
we can invest in something in a mark cap of five mil.
The fact that we can go to 30% cash gives you flexibility to
protect yourself in a town market.
I think that's really critical. Dave, I've really enjoyed this.
Thanks for making the time and coming on money if not.
Yeah, thank you. So good to chat.
Yeah. Thanks, Dave.
Awesome. Fantastic.
There we go mate and a massive thank you to all our partners.
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