Mining’s Revenge: From Rock Bottom to S&P’s Top Performer I John Forwood
Summary
Market Performance: Numont, a mining stock, is the second-best performer in the S&P 500 year-to-date, highlighting a significant shift in sentiment driven by rising gold prices.
Gold Price Impact: The gold price, reaching record highs, has influenced market sentiment, with analysts adjusting models to incorporate higher gold prices, impacting valuations positively.
Interest Rates and Sentiment: Changes in US interest rates are a crucial driver of sentiment in the mining sector, with recent rate hikes initially dampening the junior mining space.
Geopolitical Factors: Central bank gold purchases and geopolitical tensions, such as the Russia-Ukraine conflict, are influencing the gold market, though interest rates remain the primary factor.
Commodities and Supply Chain: The weaponization of commodities by countries like China and Guinea is affecting global supply chains, with governments and companies investing to secure local supplies.
Investment Strategy: John Forwood's fund focuses heavily on grassroots exploration, seeing value in junior explorers, especially in the uranium sector, due to their potential leverage to commodity price increases.
Future Catalysts: Potential changes in the US Federal Reserve's composition could lead to rate cuts, providing a favorable environment for gold and junior mining stocks.
Transcript
Did you know that a mining stock is actually the second best performer in the S&P 500 year to date? I didn't until recently. That means a lot of you are probably not aware of that either. It is Numod. The stock is up about 85% and it's beating the Teslas, the Googles, the Alphabets of the world and it's only being bested by Palanteer right now which seems to be in a massive downtrend. Are we going to see a mining stock at the helm of the S&P 500 year to date? That's going to be an insane development. uh especially looking at the performance in pneumont last year I think pneumon ranked 430th massive change in sentiment the gold price of course has a lot to do with that and I've invited John forward he's the CIO of Lowel or Lowel Resource Investment Funds and I'm really looking get to getting his perspective on why has sentiment changed and what is sentiment right now in general so lots to discuss and uh please hit that like and subscribe button it helps us out tremendously and we much much appreciate now let me switch over to my guest John it It's great to welcome you back on Soore Financially. It's good to see you again. >> Yeah, Kai, great great to be back on. Thank you very much for the invitation to um to come back. >> Yeah, absolutely. Fun times. Uh quite a bit of excitement in our space and I'm really excited to see it as well. Um I only found out yesterday that Numont is actually one of the top performing stocks in the S&P 500. Um I've been looking at it, you know, briefly last year just from time to time and I was like it was always in the bottom. As I said, I think it was ranking 430th last year at some point, but now it's second. Let's discuss sentiment here, John. Like, what is sentiment in the mining space? And I'm including everything here. Um, of course, mostly discussing gold or with a backdrop of gold here, but what is sentiment? >> Yeah, look, um, yeah, you know, I saw I I sort of got to, you know, do a double take when I saw new mod at 104, I think it was $104 a share yesterday. Um, that's in in Australia, I think. Um but yeah, you know, uh fantastic to to see that and look um you know, sentiment in Australia has been on the ASX in particular has definitely been better um over the last few years than in North America. Um but you know, this year we've seen so far, you know, the TSX Venture Metals and Mining um index up I think it's up well over 50% when I last when I last looked for the year. Um and the Aussie stocks as well have you know um come off a a higher base. Uh I think since April um all ASX um resources stocks on average are up um nearly 30%. Um so we've seen quite a jump there as well. So look um I think you know a lot of that is is gold price gold price driven. um you know, obviously gold price hitting record highs back in in March, April this year and maintaining that um that level at uh you know, well over $3,000 US an ounce. So that you know that is starting to feed through. I think, you know, we're starting to see people um, you know, believe that the gold price is not just a flesh in the pan. Um, and, you know, analysts are starting to plug in higher gold prices to in their models and that's sort of feeding through through the valuations. So that's that's definitely one thing but I think um you know sentiment particularly in the you know non-yielding you know um uh you know more speculative end of of any market is is is really driven one of the most important drivers is interest rates and and US interest rates in particular. So yeah, we do see, you know, sentiment reacting very quickly to um changes in the outlook for for interest rates. >> Yeah, it's been really interesting. I've been saying on this on our channel or in presentations I've been giving at conferences that once the Fed started raising rates back in March 2022, our sector pretty much died. Meaning the junior mining space, especially in North America, you Australia was a bit different. you have the super funds supporting the the explorers and the developers a bit more than in North America here. Um, but I'm I'm trying to like get get a bit more granular on those macro shocks impacting the space. Like we've seen the Jerome Powell press conference about 3 weeks ago and he he used quite a bit of a hawkish tone and gold dropped almost $100 that day. Um, like why is gold all of a sudden so sensitive to to this? Like we've seen it before, gold didn't really care and now it's super sensitive. what what do you make of it? >> Yeah, look, it's it's interesting and and then you know sort of more recently when uh US inflation came in a little bit uh you know um better if you like um than than expectations at around 2.7%. Um I think you know that quickly you know fed into um you know stronger stronger gold price and in particular stronger junior resources resources sector. So yeah and then if you go back you know a lot further when you know I like to you know go back to the start of co uh when interest rates got cut to zero and at least on the ASX you know the junior resources sector shot the lights out um with a with a you know essentially a zero interest 0% interest rate um out of out of the US. So it is interesting to see you know um these you know quick reactions to to um outlooks on on interest rates. uh you know I think the underlying you know in in the previously say in the last 18 months we haven't seen that um you know particularly because the gold price has been underpinned by ddollarization I believe you know um you know we've seen that uh um divergence between the gold price and the silver price because central banks have been buying gold um you know and and moving some of their reserves from US dollars into gold. Um, and they haven't been doing that with silver. Uh, so I think central bank buying has really been an underlying theme in in in pushing the gold price up. Uh, maybe um, you know, the uh, you know, the market's sort of saying, okay, well, we've got to a level which the, you know, central banks are sort of happy to uh, you know, come in and out of the market at. Um and that has left the sort of the uh swing factor if you like um to to be much more uh interest rates. Yeah. No, it's uh it's always puzzling to see gold react to certain uh news out in the market, right? Because right now it seems like we're the gold price is obviously rangebound. Uh we're we're sort of stuck or nailed or nailed to 3340. Um it seems uh we we have the central banks the Fed cut or the Fed cycle or the Fed rate cut cycle potentially starting or kicking back up again versus geopolitics meaning you've been touching on central bank buying but also the Israel is invading Gaza Gaza yet again pushing for Gaza city. Um Russia Ukraine situation seems to be further further away from being resolved than it is being resolved because security guarantees seem to be a problem. If if you were to assign percentages, what's weighing on gold mostly right now? Is is it is it really equally distributed right now? Hence, uh the the flat gold price. >> Yeah. Look, um you know, I would say, uh interest rates number one, um you know, uh central bank buying close behind. And then look I I I really don't I I I think that you know geopolitics um you the reaction the gold price to um you know geopolitical ructions is is pretty muted and so I'd say that would be uh number you know uh you know far far distant distant third. >> Yeah. No, absolutely. Um, back in April, we've seen Liberation Day and we don't need to talk about the impact of tariffs on the mining space, although we can touch on when we discuss copper perhaps later later on. But, um, I'm I'm more curious like the correlation between the S&P 500 recovering massively, pretty much trading near record highs again. Um, the reason I'm asking or where I'm coming from is I always thought we need to scare the 401k investors a bit of the retail money to to shift allocations meaning rotate out of the S&P 500 out of the e money let's call it that compound annual growth rate was about 20% for the last what is it 14 15 years um to move into mining how much like I was really disappointed to see the recovery to be quite honest because I was hoping more money would shift in our space like How disappointed were you to see that? And were you disappointed at all? And do we need that money to shift? >> Yeah, look, um, we don't need much of it, but we need we need a little bit. Um, because I think, uh, there's some data there that shows that, um, the m mining equities make up 1% or maybe slightly less of of global equities. So, you know, to um you know, double uh double the value of mining equities, you know, you only need 1% movement in global equity equity funds. So, you know, arguably not not too much. Um so, yeah, look, uh you know, I was thinking, you know, if we look back to um in January, February, you know, when we had that deepseek moment for AI and you know, people were um you know, um casting doubt on the potential of the Magnificent 7. um you know an AI in the US and was that going to be threatened by China etc. And I thought you know maybe we might see a bit of a migration um then um towards other sectors including including mining. Uh but you know things have just gone from from strength to strength. And I think one factor is that um uh you know the big the big companies just get bigger. You know um I think you know the magnificent 7 uh you know has a a very disproportionate um share of you know US US equity by market cap. Um and similarly in Australia in fact the situation apparently is even worse um that the top 10 or 20 stocks have an even larger share of the u of the index than the magnificent seven in in the US. So I think you know we're seeing this um uh the big get bigger and and you know by analogy the small perhaps get get smaller. So um and generally you know the mining mining equities are not the big not the big big boys. Um so yeah you know interesting is here in Australia um there's a bank called the Comwalth Bank which apparently is the most highly valued bank in the world um and people you know can't believe how you know how overvalued if you like it it is but it just keeps on the share price keeps on going up and up and this is the an example of this you know the big get bigger uh and you know it's not the mining stocks >> no it's uh yeah that diversification also because of liquidity like we're at the top of M2 money supply in the US. It's absolute record levels against there's so much liquidity needs a home and our let's in comparison illquid juniors or mining stocks >> just just cannot cope. I I think so once the floodgates open I'm I'm excited for it to happen. John um staying on the macro thematic for a little bit longer and maybe just talk commodities in general like you you brought up the point that uh commodities are being weaponized on a global basis these days. uh doesn't matter if it's the US, China or even smaller countries. You mentioned Guinea to me before hitting the record button. Um what do you make of that as well? Like it how is that how has that been changing over the last 12 to 24 months? >> Yeah. So it's um you know it's not just the superpowers who are you know weaponizing commodities obviously you know China um you know you can't open the paper without reading about rare earths and and the US you know trying to reshore or Frenchshore um their supply of reears rare earths in particular but you know it goes you know much much broader than that you can talk about uh copper you can talk about um you know uh you know zinc you can talk about you know pretty much any commod And um uh you know there's a there's a potential for um shocks to the system by any particular country that may be a major producer or in particular a major refiner or commodity um to um you know really uh um you deprive other country companies of countries of supply. Um and yeah, we've seen that you know um in in Africa as well. So we've seen uh you know borsite supply out of Guinea be curtailed by the Guineian government. This is in West Africa. We've seen uh cobalt supply out of the DRC biggest world's biggest producer be curtailed by that government. And we've seen um the Gabon government say that they're not going to allow any export of unprocessed manganesees um from 2030. So, so yeah, look that that sort of weaponization of commantees seems to be seems to be gathering steam. >> Yeah, absolutely. We're seeing governments handing out grants to to sort of support local uh supply like the US been giving out grants quite a bit. NP materials comes to mind here and now industry players like Apple or Google are starting to invest in those companies as well. Do you see that trend continuing and what else needs to happen uh to sort of secure the supply at least in the western world? Yeah, look, I think, you know, it's it's interesting uh to see um you know, I'm sure it's happening elsewhere, but here in Australia, there's um two major smelting operations. one at Mount Eer and Townsville for copper and another one in South Australia and Tasmania for for zinc um which just can't compete anymore um without government support um against uh you know the the massive buildout of the smelting and refining capacity in China for those for those commodities. So you know there's a there's a real choice for the western world if you you know in this example to make um do they want to um provide huge government subsidies to these operations to make sure that um you know there's a western supply of these critical metals or are they going to fold and just say okay well you know um we're going to hand it over to China like like has happened with with rare earths but it's going going to be it's going to be very costly um you know if if um if governments choose to um choose to provide ongoing support. >> I I don't want to get political but how much do ESG policies have have to do with that trend? Like did we miss the boat? Did we did we bet on the wrong horse here? Look, I think um certainly uh the general consensus is in particularly in rare earths that China has um come to you know part of the reason why China has come to dominate the the mining and and refining of rare earths is that uh the environmental controls on that production are not what you would expect to see in in the western world and and hence They've been this not the only reason but part of the reason they've been able to um you know produce those commodities cheaper than um you know the west is able to with the you know with the environmental um requirements that are imposed on on western countries. So look I I don't know if we've um we've missed missed the boat. Um, you know, it's obviously extremely important that we protect the environment, but um, yeah, you know, it's a it's a it's a very it's very difficult conundrum. >> Yeah, I I remember being quite happy shipping off all the rare earth refining uh to China and let them deal with it and not have it in our backyard quite honestly. So, >> no, it's it's interesting. Um, let's come back to gold a little bit and you you touched on it a little bit is the gold price assumptions and studies. Um, and I find that quite interesting. I've been harping the tune, or not harping, I've been mentioning here on the channel as well that Beric still uses a reserve price of $1,400 an ounce uh for its reserve price calculations, which is almost a $2,000 difference. Um, everybody's cheering for M&A in the space. We need more M&A, but what happens if the majors, the big companies start to repric their reserve, their reserves, and start looking in their own um backyard to say, "Okay, we've got way more gold here at $3,000, for example. We we've got I I'm making numbers up, by the way. We we can have two three times the amount of gold to process. We don't need to buy anybody. >> Yep. Look, and that's that's really interesting to see that that hasn't really happened yet. you know the sort of the the corollery of that is uh that um companies start processing lower grade ore um which which means that their costs on a per ounce basis go up and we haven't really seen that yet. We've seen the margin, you know, explode, you know, open up massively for for the average gold miner, which means that they've been disciplined in continuing to mine uh a grade of ore that will allow them to have that, you know, really really handsome margin and make, you know, massive cash operating profits. So look, but you know, the longer that gold price stays um you know, in in lofty territory, then um I think you know, the temptation to uh re uh you know, redo reserves at at higher prices um and and mine lower grade ore is is going to be um irresistible. >> It has to be. It just makes sense in my opinion because a lot of studies come out these days and you touched on it as well, feasibility studies around $2,500, a lot higher than the 1,600 we've seen only 12 months ago, of course. Where do you think they should price gold? Like what is your for and I don't want like want to price target for gold from you, but I was just like what kind of price should the miners be using for their calculations? >> Yeah, look, I think um you know uh you don't want to be using you know spot. It it is it is good you know and a lot of a lot of companies when they do a feasibility study and they come out with their NPV will have a matrix um which shows you know various gold prices um you know various exchange rates uh and it'll give a you know a range of of MPVS. So um but generally you know those gold prices seem to top out at around you know three if a company's reasonably conservative top out around US $3,000 an ounce. So yeah, look, um I think you know um looking uh at an average, you know, like a a previous three-year average is is pretty conservative. That's going to give you a fairly low number, obviously. Uh but then, you know, plugging in, you know, uh different higher gold prices to give the market a good idea of what the what the value could be, you know, if if if gold continues. you know, and I guess, you know, what we're the other thing we haven't seen uh or or we've seen the reverse of is is um is hedging. You know, uh a lot of the profits or some of the profits the gold miners have been making have actually been used to buy back buy back their out of the money hedgebooks. So, um you know, you know, a lot of these companies are almost 100% exposed to uh the gold price. they may be they may also be using some of their profits to buy puts um to to protect the downside and and that those put options can be relative you know very cheap on a historical basis. So uh that's really smart uh you know um risk management in my view um spend a few a few dollars protecting the downside and leaving the upside um you know completely open. >> Yeah. No hedging is an interesting one and only a few have done it. Uh I I remember Atlantic Gold St. Barbara had to do it uh to to get their financing. They had to put hedges in place which weren't really favorable if I remember correctly. Um but but I think it was the Australian bank that sort of demanded it. I think it was McCory Bank that demanded that a hedge if I remember correctly. So >> um >> I'm jumping around a little bit because we got a lot of ground to cover and it's really interesting to talk mining with somebody. Um but maybe a bit of a basic question almost but like what is hot in our space right now? like what what is the money chasing right now in our sector? >> Uh look if you if you you know I think you know gold gold obviously um I think uh there are some uh you know more sort of boutique or specialty metals which are attracting catching a bit of a bid. um you know here in Australia nobbium has been um you know flavor of the month for probably you know at least at least 12 months because there has been some uh amazing amazing discoveries um I think uh just putting my Aussie hat on you know because we don't have nearly as many silver plays on the on the on the exchange as as you do in North America I think um if there's a if there's a good silver play to be listed you know on ASX then that is attracting some some you know quite quite considerable capital. Um and then you know other other things you know I mentioned I mentioned boxite that's that's pretty interesting. Um you know iron ore is not is not hot but you know the price is still remarkably strong. Um, so yeah, I think the bulks are perhaps, you know, lagging behind. Iron or and coal, you know, not uh not really flavor of the month and, you know, the specialty metals, um, you know, are, you know, attracting a bit. >> I was going to ask you about lithium. I've been hearing a little bit more about it recently. Again, personally, I'm still not a fan. I'm not convinced that it makes sense, but the price of lithium has been moving higher. What What do you make of lithium right now? Yeah, look, um it's it's tough to go in boots and all to lithium at the moment. Um I think, you know, we're only just starting to see a supply response to um you know, the the low prices. Um you know, of course, you know, low prices are, you know, supposed to be the cure for low prices and vice versa. Um but yeah, you know, we've just seen that um I think it's the world's biggest lithium hard rock mine in China, you know, be put on care and maintenance for uh 3 months um for it's uncertain exactly what the reason is. Uh but um yeah, and then we saw a a price response to that. But um you know here in Australia we've of the sort of half a dozen you know new lithium mines that we saw come on stream in the last five or six years um only one has has come offline so far. Um so yeah, you know, uh we need either to see um more um supply um restrictions uh or um you know, demand catching up and exceeding supply uh or preferably preferably both. >> No, it's it's a difficult one for me. It's more of a chemicals process than anything else. I'm really struggling with lithium, but that's that's just me. Um, John, I want to talk a bit more about your fund real quick because I flipped through your deck and one thing that stood out to me is that 30% of your investments are in grassroots explorers. Um, explain to us why and how has that percentage changed over the last 12 to 18 months. >> Yeah, look, we're we're definitely, you know, um, perhaps uh, an unusual fund in that we do like to take um, a big chunk of expiration risk. That's just the nature of of what we do and and where our expertise lies. So we always will have a um a good uh exposure to um grassroots exploration. By that I mean um things that you know uh projects or companies that don't have a a mineral resource yet. Um but we we we do always um uh you know take a view that you know the companies and the projects we invest in have got a a a better than average or a good chance of developing a mineral resource and um having a potential to to go into production. So it's not generally it's not just um you know pie in the sky and moose pasture we're investing in. There's got to be some good signs of of mineralization. Um but uh yeah you know I think uh the reason for having such a significant chunk in in grassroots exploration maybe I'll take uranium as as perhaps the best example I can think of that um you know when when the uranium price went to 100 bucks a pound all the junior resources all the all the companies ran really strongly uranium prices pulled back to you know 70 around 70 bucks a found and uh the near near-term developers and and the producers have still got very strong um share prices and and arguably quite quite strong valuations, but the um junior explorers have been absolutely decimated. So that's where we see the real value. You know, some of these guys are trading at, you know, cash backing or even less than cash backing. Um uh and and if and when the gold price goes back to 100 bucks, sorry, the uranium price goes back 100 bucks a pound or hopefully, you know, goes well through it, um it's going to be those junior explorers that are the best leverage to the uranium price. So yeah, you know, that's that's um that's the thesis there. >> I get it. But has that percentage changed at all in in recent months? Have you come more downstream or um because I know your producer like you only own like 5% or so producers in the portfolio. Have you have you moved that downward? >> Yeah, we we have. So you know we we've exited you know our our um our model is generally to exit uh you know companies as they approach approach production. So we some of our long-term holdings such as uh predictive discovery in West Africa. We exited that uh earlier in the year and so that sort of shifted um uh you know that was a significant holding also a company called gold producer here in Australia which took over one of our explorers um a couple of years ago we exited that as well. So you know we've we've deployed redeployed those funds into um early stage projects. >> Yeah. Okay. No makes sense that's the fund strategy because it's not too often that you see 30% exposure to grassroots explorers. Um, so I was curious like whether sentiment on your end has also changed and you're willing to take more risk now because I've had investors talk to me say, "Yeah, no Kai, I'm only looking at developers or producers right now. I'm not doing anything at the higher at the at the lower end of the mining space here." Right? So that's >> I think I think the other thing that's happened is you know there has been um value organic value growth in um the junior explorers particularly in gold um and that has just boosted the value of that part of the portfolio. Yeah. Um, John, maybe looking forward to the next six months here, do you see any catalysts that could really catapult juniors into into the next to the next level here, do you have any expectations what that might be? >> Yeah, look, the obvious one is um what's going to happen at the Fed? Um, you know, there's a new uh uh Fed member to be appointed, I think, in the next 6 months. And, um, you know, I can't see the ructions around Jerome Pal's position changing diminishing at all. Um, so yeah, I think it's fairly fairly I'm fairly confident that the next Fed chair is going to be someone who is much more amanable to cutting rates. Um and you know while there is obviously the um the weight of incumbency and you know even if you might appoint a radical to the Fed um you know that the the the responsibility of the job does tend to moderate that that um radicalism if you like but um yeah I think we're going to see someone there and and and sort of the change in composition of the Fed board that um you know is much more amanable to cutting rates and that will be great for gold and great for for juniors. >> Fantastic. John, I'm really looking forward to hosting you in Frankfurt mid November at the Deutsche Go Messa. You'll be one of our keynotes and I I could chat with you for hours about mining. It's a little difficult to pack everything into a 30-minute conversation, but uh we'll do a proper followup in Frankfurt. So, I'm really looking forward to that. But in the meantime, where can we send our audience, John, to follow your work? Uh look, you know, certainly please go to our website um which is um lrfm.com.au. That stands for lowresources funds management.com.au and you can get there's lots of uh materials. We do a monthly report on the market and our uh our um you know our fund holdings as well. >> Fantastic John really appreciate you joining us and everybody else. Thanks so much for tuning in to Sor Financial. very mining focused conversation today, but I really enjoy those. Uh cuz I think our sub sector or our sector in general is still massively undervalued. And I don't think all of you were aware that Numont is one of the best performing stocks in the S&P 500 this year. If you did or if you didn't, let me know down in the comments down below. And what are you doing? Are you shifting some of your money now into miners? Are you starting to be convinced of the trend that we're witnessing here? Let us know. Really curious. And don't forget to hit that like and subscribe button as well. We got fantastic content coming up later this week as well. Thank you so much. We'll be back with lots more here on Sort Financially. Take care out there. [Music]
Mining’s Revenge: From Rock Bottom to S&P’s Top Performer I John Forwood
Summary
Transcript
Did you know that a mining stock is actually the second best performer in the S&P 500 year to date? I didn't until recently. That means a lot of you are probably not aware of that either. It is Numod. The stock is up about 85% and it's beating the Teslas, the Googles, the Alphabets of the world and it's only being bested by Palanteer right now which seems to be in a massive downtrend. Are we going to see a mining stock at the helm of the S&P 500 year to date? That's going to be an insane development. uh especially looking at the performance in pneumont last year I think pneumon ranked 430th massive change in sentiment the gold price of course has a lot to do with that and I've invited John forward he's the CIO of Lowel or Lowel Resource Investment Funds and I'm really looking get to getting his perspective on why has sentiment changed and what is sentiment right now in general so lots to discuss and uh please hit that like and subscribe button it helps us out tremendously and we much much appreciate now let me switch over to my guest John it It's great to welcome you back on Soore Financially. It's good to see you again. >> Yeah, Kai, great great to be back on. Thank you very much for the invitation to um to come back. >> Yeah, absolutely. Fun times. Uh quite a bit of excitement in our space and I'm really excited to see it as well. Um I only found out yesterday that Numont is actually one of the top performing stocks in the S&P 500. Um I've been looking at it, you know, briefly last year just from time to time and I was like it was always in the bottom. As I said, I think it was ranking 430th last year at some point, but now it's second. Let's discuss sentiment here, John. Like, what is sentiment in the mining space? And I'm including everything here. Um, of course, mostly discussing gold or with a backdrop of gold here, but what is sentiment? >> Yeah, look, um, yeah, you know, I saw I I sort of got to, you know, do a double take when I saw new mod at 104, I think it was $104 a share yesterday. Um, that's in in Australia, I think. Um but yeah, you know, uh fantastic to to see that and look um you know, sentiment in Australia has been on the ASX in particular has definitely been better um over the last few years than in North America. Um but you know, this year we've seen so far, you know, the TSX Venture Metals and Mining um index up I think it's up well over 50% when I last when I last looked for the year. Um and the Aussie stocks as well have you know um come off a a higher base. Uh I think since April um all ASX um resources stocks on average are up um nearly 30%. Um so we've seen quite a jump there as well. So look um I think you know a lot of that is is gold price gold price driven. um you know, obviously gold price hitting record highs back in in March, April this year and maintaining that um that level at uh you know, well over $3,000 US an ounce. So that you know that is starting to feed through. I think, you know, we're starting to see people um, you know, believe that the gold price is not just a flesh in the pan. Um, and, you know, analysts are starting to plug in higher gold prices to in their models and that's sort of feeding through through the valuations. So that's that's definitely one thing but I think um you know sentiment particularly in the you know non-yielding you know um uh you know more speculative end of of any market is is is really driven one of the most important drivers is interest rates and and US interest rates in particular. So yeah, we do see, you know, sentiment reacting very quickly to um changes in the outlook for for interest rates. >> Yeah, it's been really interesting. I've been saying on this on our channel or in presentations I've been giving at conferences that once the Fed started raising rates back in March 2022, our sector pretty much died. Meaning the junior mining space, especially in North America, you Australia was a bit different. you have the super funds supporting the the explorers and the developers a bit more than in North America here. Um, but I'm I'm trying to like get get a bit more granular on those macro shocks impacting the space. Like we've seen the Jerome Powell press conference about 3 weeks ago and he he used quite a bit of a hawkish tone and gold dropped almost $100 that day. Um, like why is gold all of a sudden so sensitive to to this? Like we've seen it before, gold didn't really care and now it's super sensitive. what what do you make of it? >> Yeah, look, it's it's interesting and and then you know sort of more recently when uh US inflation came in a little bit uh you know um better if you like um than than expectations at around 2.7%. Um I think you know that quickly you know fed into um you know stronger stronger gold price and in particular stronger junior resources resources sector. So yeah and then if you go back you know a lot further when you know I like to you know go back to the start of co uh when interest rates got cut to zero and at least on the ASX you know the junior resources sector shot the lights out um with a with a you know essentially a zero interest 0% interest rate um out of out of the US. So it is interesting to see you know um these you know quick reactions to to um outlooks on on interest rates. uh you know I think the underlying you know in in the previously say in the last 18 months we haven't seen that um you know particularly because the gold price has been underpinned by ddollarization I believe you know um you know we've seen that uh um divergence between the gold price and the silver price because central banks have been buying gold um you know and and moving some of their reserves from US dollars into gold. Um, and they haven't been doing that with silver. Uh, so I think central bank buying has really been an underlying theme in in in pushing the gold price up. Uh, maybe um, you know, the uh, you know, the market's sort of saying, okay, well, we've got to a level which the, you know, central banks are sort of happy to uh, you know, come in and out of the market at. Um and that has left the sort of the uh swing factor if you like um to to be much more uh interest rates. Yeah. No, it's uh it's always puzzling to see gold react to certain uh news out in the market, right? Because right now it seems like we're the gold price is obviously rangebound. Uh we're we're sort of stuck or nailed or nailed to 3340. Um it seems uh we we have the central banks the Fed cut or the Fed cycle or the Fed rate cut cycle potentially starting or kicking back up again versus geopolitics meaning you've been touching on central bank buying but also the Israel is invading Gaza Gaza yet again pushing for Gaza city. Um Russia Ukraine situation seems to be further further away from being resolved than it is being resolved because security guarantees seem to be a problem. If if you were to assign percentages, what's weighing on gold mostly right now? Is is it is it really equally distributed right now? Hence, uh the the flat gold price. >> Yeah. Look, um you know, I would say, uh interest rates number one, um you know, uh central bank buying close behind. And then look I I I really don't I I I think that you know geopolitics um you the reaction the gold price to um you know geopolitical ructions is is pretty muted and so I'd say that would be uh number you know uh you know far far distant distant third. >> Yeah. No, absolutely. Um, back in April, we've seen Liberation Day and we don't need to talk about the impact of tariffs on the mining space, although we can touch on when we discuss copper perhaps later later on. But, um, I'm I'm more curious like the correlation between the S&P 500 recovering massively, pretty much trading near record highs again. Um, the reason I'm asking or where I'm coming from is I always thought we need to scare the 401k investors a bit of the retail money to to shift allocations meaning rotate out of the S&P 500 out of the e money let's call it that compound annual growth rate was about 20% for the last what is it 14 15 years um to move into mining how much like I was really disappointed to see the recovery to be quite honest because I was hoping more money would shift in our space like How disappointed were you to see that? And were you disappointed at all? And do we need that money to shift? >> Yeah, look, um, we don't need much of it, but we need we need a little bit. Um, because I think, uh, there's some data there that shows that, um, the m mining equities make up 1% or maybe slightly less of of global equities. So, you know, to um you know, double uh double the value of mining equities, you know, you only need 1% movement in global equity equity funds. So, you know, arguably not not too much. Um so, yeah, look, uh you know, I was thinking, you know, if we look back to um in January, February, you know, when we had that deepseek moment for AI and you know, people were um you know, um casting doubt on the potential of the Magnificent 7. um you know an AI in the US and was that going to be threatened by China etc. And I thought you know maybe we might see a bit of a migration um then um towards other sectors including including mining. Uh but you know things have just gone from from strength to strength. And I think one factor is that um uh you know the big the big companies just get bigger. You know um I think you know the magnificent 7 uh you know has a a very disproportionate um share of you know US US equity by market cap. Um and similarly in Australia in fact the situation apparently is even worse um that the top 10 or 20 stocks have an even larger share of the u of the index than the magnificent seven in in the US. So I think you know we're seeing this um uh the big get bigger and and you know by analogy the small perhaps get get smaller. So um and generally you know the mining mining equities are not the big not the big big boys. Um so yeah you know interesting is here in Australia um there's a bank called the Comwalth Bank which apparently is the most highly valued bank in the world um and people you know can't believe how you know how overvalued if you like it it is but it just keeps on the share price keeps on going up and up and this is the an example of this you know the big get bigger uh and you know it's not the mining stocks >> no it's uh yeah that diversification also because of liquidity like we're at the top of M2 money supply in the US. It's absolute record levels against there's so much liquidity needs a home and our let's in comparison illquid juniors or mining stocks >> just just cannot cope. I I think so once the floodgates open I'm I'm excited for it to happen. John um staying on the macro thematic for a little bit longer and maybe just talk commodities in general like you you brought up the point that uh commodities are being weaponized on a global basis these days. uh doesn't matter if it's the US, China or even smaller countries. You mentioned Guinea to me before hitting the record button. Um what do you make of that as well? Like it how is that how has that been changing over the last 12 to 24 months? >> Yeah. So it's um you know it's not just the superpowers who are you know weaponizing commodities obviously you know China um you know you can't open the paper without reading about rare earths and and the US you know trying to reshore or Frenchshore um their supply of reears rare earths in particular but you know it goes you know much much broader than that you can talk about uh copper you can talk about um you know uh you know zinc you can talk about you know pretty much any commod And um uh you know there's a there's a potential for um shocks to the system by any particular country that may be a major producer or in particular a major refiner or commodity um to um you know really uh um you deprive other country companies of countries of supply. Um and yeah, we've seen that you know um in in Africa as well. So we've seen uh you know borsite supply out of Guinea be curtailed by the Guineian government. This is in West Africa. We've seen uh cobalt supply out of the DRC biggest world's biggest producer be curtailed by that government. And we've seen um the Gabon government say that they're not going to allow any export of unprocessed manganesees um from 2030. So, so yeah, look that that sort of weaponization of commantees seems to be seems to be gathering steam. >> Yeah, absolutely. We're seeing governments handing out grants to to sort of support local uh supply like the US been giving out grants quite a bit. NP materials comes to mind here and now industry players like Apple or Google are starting to invest in those companies as well. Do you see that trend continuing and what else needs to happen uh to sort of secure the supply at least in the western world? Yeah, look, I think, you know, it's it's interesting uh to see um you know, I'm sure it's happening elsewhere, but here in Australia, there's um two major smelting operations. one at Mount Eer and Townsville for copper and another one in South Australia and Tasmania for for zinc um which just can't compete anymore um without government support um against uh you know the the massive buildout of the smelting and refining capacity in China for those for those commodities. So you know there's a there's a real choice for the western world if you you know in this example to make um do they want to um provide huge government subsidies to these operations to make sure that um you know there's a western supply of these critical metals or are they going to fold and just say okay well you know um we're going to hand it over to China like like has happened with with rare earths but it's going going to be it's going to be very costly um you know if if um if governments choose to um choose to provide ongoing support. >> I I don't want to get political but how much do ESG policies have have to do with that trend? Like did we miss the boat? Did we did we bet on the wrong horse here? Look, I think um certainly uh the general consensus is in particularly in rare earths that China has um come to you know part of the reason why China has come to dominate the the mining and and refining of rare earths is that uh the environmental controls on that production are not what you would expect to see in in the western world and and hence They've been this not the only reason but part of the reason they've been able to um you know produce those commodities cheaper than um you know the west is able to with the you know with the environmental um requirements that are imposed on on western countries. So look I I don't know if we've um we've missed missed the boat. Um, you know, it's obviously extremely important that we protect the environment, but um, yeah, you know, it's a it's a it's a very it's very difficult conundrum. >> Yeah, I I remember being quite happy shipping off all the rare earth refining uh to China and let them deal with it and not have it in our backyard quite honestly. So, >> no, it's it's interesting. Um, let's come back to gold a little bit and you you touched on it a little bit is the gold price assumptions and studies. Um, and I find that quite interesting. I've been harping the tune, or not harping, I've been mentioning here on the channel as well that Beric still uses a reserve price of $1,400 an ounce uh for its reserve price calculations, which is almost a $2,000 difference. Um, everybody's cheering for M&A in the space. We need more M&A, but what happens if the majors, the big companies start to repric their reserve, their reserves, and start looking in their own um backyard to say, "Okay, we've got way more gold here at $3,000, for example. We we've got I I'm making numbers up, by the way. We we can have two three times the amount of gold to process. We don't need to buy anybody. >> Yep. Look, and that's that's really interesting to see that that hasn't really happened yet. you know the sort of the the corollery of that is uh that um companies start processing lower grade ore um which which means that their costs on a per ounce basis go up and we haven't really seen that yet. We've seen the margin, you know, explode, you know, open up massively for for the average gold miner, which means that they've been disciplined in continuing to mine uh a grade of ore that will allow them to have that, you know, really really handsome margin and make, you know, massive cash operating profits. So look, but you know, the longer that gold price stays um you know, in in lofty territory, then um I think you know, the temptation to uh re uh you know, redo reserves at at higher prices um and and mine lower grade ore is is going to be um irresistible. >> It has to be. It just makes sense in my opinion because a lot of studies come out these days and you touched on it as well, feasibility studies around $2,500, a lot higher than the 1,600 we've seen only 12 months ago, of course. Where do you think they should price gold? Like what is your for and I don't want like want to price target for gold from you, but I was just like what kind of price should the miners be using for their calculations? >> Yeah, look, I think um you know uh you don't want to be using you know spot. It it is it is good you know and a lot of a lot of companies when they do a feasibility study and they come out with their NPV will have a matrix um which shows you know various gold prices um you know various exchange rates uh and it'll give a you know a range of of MPVS. So um but generally you know those gold prices seem to top out at around you know three if a company's reasonably conservative top out around US $3,000 an ounce. So yeah, look, um I think you know um looking uh at an average, you know, like a a previous three-year average is is pretty conservative. That's going to give you a fairly low number, obviously. Uh but then, you know, plugging in, you know, uh different higher gold prices to give the market a good idea of what the what the value could be, you know, if if if gold continues. you know, and I guess, you know, what we're the other thing we haven't seen uh or or we've seen the reverse of is is um is hedging. You know, uh a lot of the profits or some of the profits the gold miners have been making have actually been used to buy back buy back their out of the money hedgebooks. So, um you know, you know, a lot of these companies are almost 100% exposed to uh the gold price. they may be they may also be using some of their profits to buy puts um to to protect the downside and and that those put options can be relative you know very cheap on a historical basis. So uh that's really smart uh you know um risk management in my view um spend a few a few dollars protecting the downside and leaving the upside um you know completely open. >> Yeah. No hedging is an interesting one and only a few have done it. Uh I I remember Atlantic Gold St. Barbara had to do it uh to to get their financing. They had to put hedges in place which weren't really favorable if I remember correctly. Um but but I think it was the Australian bank that sort of demanded it. I think it was McCory Bank that demanded that a hedge if I remember correctly. So >> um >> I'm jumping around a little bit because we got a lot of ground to cover and it's really interesting to talk mining with somebody. Um but maybe a bit of a basic question almost but like what is hot in our space right now? like what what is the money chasing right now in our sector? >> Uh look if you if you you know I think you know gold gold obviously um I think uh there are some uh you know more sort of boutique or specialty metals which are attracting catching a bit of a bid. um you know here in Australia nobbium has been um you know flavor of the month for probably you know at least at least 12 months because there has been some uh amazing amazing discoveries um I think uh just putting my Aussie hat on you know because we don't have nearly as many silver plays on the on the on the exchange as as you do in North America I think um if there's a if there's a good silver play to be listed you know on ASX then that is attracting some some you know quite quite considerable capital. Um and then you know other other things you know I mentioned I mentioned boxite that's that's pretty interesting. Um you know iron ore is not is not hot but you know the price is still remarkably strong. Um, so yeah, I think the bulks are perhaps, you know, lagging behind. Iron or and coal, you know, not uh not really flavor of the month and, you know, the specialty metals, um, you know, are, you know, attracting a bit. >> I was going to ask you about lithium. I've been hearing a little bit more about it recently. Again, personally, I'm still not a fan. I'm not convinced that it makes sense, but the price of lithium has been moving higher. What What do you make of lithium right now? Yeah, look, um it's it's tough to go in boots and all to lithium at the moment. Um I think, you know, we're only just starting to see a supply response to um you know, the the low prices. Um you know, of course, you know, low prices are, you know, supposed to be the cure for low prices and vice versa. Um but yeah, you know, we've just seen that um I think it's the world's biggest lithium hard rock mine in China, you know, be put on care and maintenance for uh 3 months um for it's uncertain exactly what the reason is. Uh but um yeah, and then we saw a a price response to that. But um you know here in Australia we've of the sort of half a dozen you know new lithium mines that we saw come on stream in the last five or six years um only one has has come offline so far. Um so yeah, you know, uh we need either to see um more um supply um restrictions uh or um you know, demand catching up and exceeding supply uh or preferably preferably both. >> No, it's it's a difficult one for me. It's more of a chemicals process than anything else. I'm really struggling with lithium, but that's that's just me. Um, John, I want to talk a bit more about your fund real quick because I flipped through your deck and one thing that stood out to me is that 30% of your investments are in grassroots explorers. Um, explain to us why and how has that percentage changed over the last 12 to 18 months. >> Yeah, look, we're we're definitely, you know, um, perhaps uh, an unusual fund in that we do like to take um, a big chunk of expiration risk. That's just the nature of of what we do and and where our expertise lies. So we always will have a um a good uh exposure to um grassroots exploration. By that I mean um things that you know uh projects or companies that don't have a a mineral resource yet. Um but we we we do always um uh you know take a view that you know the companies and the projects we invest in have got a a a better than average or a good chance of developing a mineral resource and um having a potential to to go into production. So it's not generally it's not just um you know pie in the sky and moose pasture we're investing in. There's got to be some good signs of of mineralization. Um but uh yeah you know I think uh the reason for having such a significant chunk in in grassroots exploration maybe I'll take uranium as as perhaps the best example I can think of that um you know when when the uranium price went to 100 bucks a pound all the junior resources all the all the companies ran really strongly uranium prices pulled back to you know 70 around 70 bucks a found and uh the near near-term developers and and the producers have still got very strong um share prices and and arguably quite quite strong valuations, but the um junior explorers have been absolutely decimated. So that's where we see the real value. You know, some of these guys are trading at, you know, cash backing or even less than cash backing. Um uh and and if and when the gold price goes back to 100 bucks, sorry, the uranium price goes back 100 bucks a pound or hopefully, you know, goes well through it, um it's going to be those junior explorers that are the best leverage to the uranium price. So yeah, you know, that's that's um that's the thesis there. >> I get it. But has that percentage changed at all in in recent months? Have you come more downstream or um because I know your producer like you only own like 5% or so producers in the portfolio. Have you have you moved that downward? >> Yeah, we we have. So you know we we've exited you know our our um our model is generally to exit uh you know companies as they approach approach production. So we some of our long-term holdings such as uh predictive discovery in West Africa. We exited that uh earlier in the year and so that sort of shifted um uh you know that was a significant holding also a company called gold producer here in Australia which took over one of our explorers um a couple of years ago we exited that as well. So you know we've we've deployed redeployed those funds into um early stage projects. >> Yeah. Okay. No makes sense that's the fund strategy because it's not too often that you see 30% exposure to grassroots explorers. Um, so I was curious like whether sentiment on your end has also changed and you're willing to take more risk now because I've had investors talk to me say, "Yeah, no Kai, I'm only looking at developers or producers right now. I'm not doing anything at the higher at the at the lower end of the mining space here." Right? So that's >> I think I think the other thing that's happened is you know there has been um value organic value growth in um the junior explorers particularly in gold um and that has just boosted the value of that part of the portfolio. Yeah. Um, John, maybe looking forward to the next six months here, do you see any catalysts that could really catapult juniors into into the next to the next level here, do you have any expectations what that might be? >> Yeah, look, the obvious one is um what's going to happen at the Fed? Um, you know, there's a new uh uh Fed member to be appointed, I think, in the next 6 months. And, um, you know, I can't see the ructions around Jerome Pal's position changing diminishing at all. Um, so yeah, I think it's fairly fairly I'm fairly confident that the next Fed chair is going to be someone who is much more amanable to cutting rates. Um and you know while there is obviously the um the weight of incumbency and you know even if you might appoint a radical to the Fed um you know that the the the responsibility of the job does tend to moderate that that um radicalism if you like but um yeah I think we're going to see someone there and and and sort of the change in composition of the Fed board that um you know is much more amanable to cutting rates and that will be great for gold and great for for juniors. >> Fantastic. John, I'm really looking forward to hosting you in Frankfurt mid November at the Deutsche Go Messa. You'll be one of our keynotes and I I could chat with you for hours about mining. It's a little difficult to pack everything into a 30-minute conversation, but uh we'll do a proper followup in Frankfurt. So, I'm really looking forward to that. But in the meantime, where can we send our audience, John, to follow your work? Uh look, you know, certainly please go to our website um which is um lrfm.com.au. That stands for lowresources funds management.com.au and you can get there's lots of uh materials. We do a monthly report on the market and our uh our um you know our fund holdings as well. >> Fantastic John really appreciate you joining us and everybody else. Thanks so much for tuning in to Sor Financial. very mining focused conversation today, but I really enjoy those. Uh cuz I think our sub sector or our sector in general is still massively undervalued. And I don't think all of you were aware that Numont is one of the best performing stocks in the S&P 500 this year. If you did or if you didn't, let me know down in the comments down below. And what are you doing? Are you shifting some of your money now into miners? Are you starting to be convinced of the trend that we're witnessing here? Let us know. Really curious. And don't forget to hit that like and subscribe button as well. We got fantastic content coming up later this week as well. Thank you so much. We'll be back with lots more here on Sort Financially. Take care out there. [Music]