GOLD Bull Run: You Are Not Too Late YET | Michael Gentile
Summary
Market Outlook: The podcast discusses the strong year-to-date performance of mining stocks, particularly Newmont, which has seen a 91% increase, indicating a positive trend in the mining sector.
Investment Sentiment: Michael Gentile highlights the improving margins and cash flow in the mining sector, suggesting that the market is still in the early stages of a potential bull run.
Sector Rotation: There is a need for capital rotation from tech stocks to mining, similar to the late 1990s when old economy stocks gained attention after the dot-com bubble burst.
Company Strategies: Major mining companies like Newmont and Barrick are focusing on portfolio optimization, cash flow generation, and potential M&A to enhance their competitive positions.
Exploration and M&A: The scarcity of shovel-ready projects and underinvestment in exploration are discussed as challenges, but potential M&A activity could drive growth in the junior mining sector.
Risks and Challenges: The podcast identifies potential risks such as a strong US dollar and fiscal discipline in the US, which could impact gold prices and the mining sector's outlook.
Conference Insights: Upcoming conferences are expected to focus on new discoveries and management improvements, with an emphasis on the need for funding in greenfield exploration.
Long-term Perspective: Despite short-term risks, the overall sentiment remains bullish on the mining sector, with expectations of continued growth and investment opportunities.
Transcript
Did you miss the boat in miners already? Pneumont is the second best performing stock in the S&P S&P 500 year to date. 91% year-to- date performance, which is absolutely fantastic. And Newmont is closing the gap to Palanteer fast. It is happening. It's catching up. It might be holding the top spot by the end of the year. We'll see. Margins are trending the right way. $3,300 gold on average in Q2. The financials have been phenomenal for the miners. And I've invited a guest on to discuss like where is this headed? What where are we in the cycle and what is sentiment in the mining and junior mining space in particular. His name is Michael Gentil. He's a strategic investor in the junior mining space. We've had him on about 5 months ago and we said we're just at the beginning of it all. So we're we we'll check in see what the temperature is and where are we at. Before I switch over to my guest, hit that like and subscribe button. It helps us out tremendously and we much much appreciate the support. Thanks so much for doing that. Now Michael, it is great to have you back on the show. Oh, it's good to see you. How are you? >> Good. Good to see you. >> Yeah, likewise. Likewise. How was your summer? Excited? >> It was fun. Yeah. Kids went back to school today, so it's a good day. >> It's a good day. Yeah. We're like I I use the saying like Monday the weekends start on Mondays, right? So So we we'll I'm not sure how that reflects back after vacation and long breaks like Canada, what is it? Two months off at least. So >> a long summer here. Yeah, >> it is a long summer. Well, um, Michael, we spoke about 5 months ago and we were a bit I wouldn't say gloomy, but we were like our you euphoria was we had the handbrake on still like when it came to it. Now we've seen Q2 financial come out and the mining stocks are running. Um, let's start with a basic question Michael like what is sentiment right now? What is currently the the state of affairs in the mining space? >> Yeah, it's interesting and I've been talking for two years now Kai. We've been seeing the gradual improvement, expected improvement in margins that we're now seeing in the Q2 financials. We saw Q1, Q4. You know, I said it's going to take a couple of quarters for the journalist investors to start see that cash flow show up on the balance sheets. Uh the free cash flow generation, the margin expansion. We're seeing it, as you mentioned in the intro, with companies like Pneumont generating huge amount of cash. The stocks are performing much much better. So, we're starting to see that interest return especially towards the mega cap stocks, the larger cap stocks in the spectre, the Numonts, the Agniko EOS of the world. uh and is starting slowly to filter down to more of our Universe Kai, which is the junior exploration and resource development stocks, but I still think we're we're quite early. You know, you mentioned New Pneumont's up 91% year to date, but the GDX, which is the large cap, you know, mining ETF, only just recently hit the levels it was in 2010 2011. So, it's only gone back to where gold was $2,000 an ounce. When you think about all the money printing that's gone on, all the devaluation of paper money on a real basis, on a real inflation adjusted basis, we're still well well below the old highs. So, if we were talking last time, Kai, maybe the first or second inning, maybe we're in the second or third inning today, to use baseball analogy. So, we're still very early, but as I mentioned our last interview, the stars are aligning. And what's nice to see is the price action is starting to line up with those fundamentals. The volumes are picking up, the stocks are trading a little better, the financing is getting a little easier uh for the junior companies. Still not easy, but it's getting a little easier. So, yeah, we're just seeing a gradual warming up and percolating the sector, but I I still strongly believe we're we're still very early days in this rally. >> Yeah, absolutely. Hey, like we use the term we're on the doorstep of a major rally and I think we're still maybe we got one foot in the door now. Uh we haven't really busted through yet. Um what do you think is still missing to to really like set the dominoes in motion here? >> So you mentioned, you know, pneumont vying for top spot in the S&P and I've been saying for a while that we need to see the tech stocks roll over. So there's been a lot of money chasing, you know, crypto and tech stocks and AI. It reminds me, Kai, a lot of the late 90s where you had the old economy stocks as they called them back then that were generating really good cash flow, had really good fundamentals, but they were basically ignored by the market because everybody had their eyes on the dotcoms. And you know, the internet ended up being even bigger than people dreamed of during the com boom, but most of the dot stocks end up being terrible investments. And when that dot rally rolled over, as you may recall, that kicked off like a 10 to 15 year bull market in commodities. So the fundamentals were percolating nicely in the late 90s for many commodities but the sector was the market was very distracted by the shiny toy of.com. So I think what we need to have happen is that tech outperformance either slow down or outright start to go down these tech stocks and then investors will rotate say what is actually the leading sector in terms of fundamentals, cash flow generation, stability, earnings profile. We need to see more rotation of capital out of tech into mining. uh the price action we're seeing this year is excellent because you know fund flows follow returns. So the fact the sector is performing better on a percentage basis, return basis this year is a good thing. But we need to see the tech momentum slow down and and right now gold's outperforming tech this year. People are still making money in tech. When they start to lose money in tech, they'll start to think, okay, this is starting to hurt me now. Where where can I make money? Where where's the next, you know, boat to get on? And I think the gold sector is lining up as a nice, you know, lifeboat for some of those tech investors that have had a great run, maybe start to lose some money in that space going forward. >> Yeah. the week after liberation day when the S&P went down to 4,800 points, I was like, "Yes, finally." Uh, a losing year in the S&P 500. Maybe some of that money will finally rotate into the mining space. Uh, well, now the S&P is back at 6,400 and that rotation hasn't really taken shape yet. Palanteer is the top of the list in the S&P 500 right now. So, that full-on tech rollover hasn't happened yet. U, Michael, but we're we're in the right. I think we discussed this before and I I said it before. We need to scare the 401k money into starting to move here. That you haven't really seen that take shape yet, have we? >> No. And I think another key point is like you talked about Numont. Pneumont's market cap as of this morning is $80 billion. You know, Nvidia's knocking on four trillion. Microsoft's 4 trillion. So, you remind your viewers again um how small the mining sector is. Despite gold, you know, reassur reassuting its role as a reserve currency. is now the second largest holding of the central banks behind the US dollar. It's about 20 25% in central bank balance sheets today with the price appreciation we've seen in gold. So despite the critical nature of gold that's now playing in the financial monetary system again which never really stopped but people are paying attention to it again and despite the critical nature of copper and all these EV you know metals critical metals that you're seeing Donald Trump do many many things to try to uh assure the US security or independence on critical metals the sector is so so small. So the sector that's feeding the global financial system in terms of stability of central bank balance sheets and the sector that's feeding the AI boom without people knowing it in terms of the technology the materials and metals required to fuel that power grid and all the AI data center buildout. The sector is so so tiny. I mean you could take I think it's Microsoft or Nvidia you could buy the whole mining sector two times over just with one of those companies. The entire global equities of all mining stocks globally. So it just shows you how small our sector is on a relative basis. And so when we do see some of that rotation, you know, 10% in Nvidia, 10% Nvidia fell by 10% that's $400 billion. If that money came into the mining sector, you'd see a huge upturn in these stocks. So very very small amount of money could dramatically move the sector. And the market caps in the sector are very very small relative to other sectors of crucial importance to the global economy. So I think that is the next key wave is the rotation of capital into this sector out of the other larger, you know, more liquid sectors in the market today. >> Yeah. Like one comment I heard uh somebody make before like he was comparing Exxon the oil companies to our space the mining space is well the dividend yields are way higher than in our sector. Um Neil Adset has done some work recently on the H1 financials of the of some of the 32 largest mining companies and he said like 5.6 billion US have been returned to shareholders in form of dividends and buybacks in the first half of the year. Um and only 1 billion has been spent on expiration. Like we can talk about the expiration side in a second but I'm curious like what what is your take? what does the dividend yield or what does it take to attract those generalists from that let's say value perspective to convince them hey this is a value play I'm getting my three four five 6% um it doesn't seem like we're there yet I mean I think it's very important and and I think you're right companies are overinvesting or overallocating capital to buy back some dividends because during the last upturn Kais you all remember right when gold went to $2,000 an ounce it was a it was a big party it was a it was a basically a bubble in the gold sector last time lots of poorly thought out M&A, not a lot of capital discipline, uh, investing in low irra projects. So the the generalist investors, you know, kind of put the mining sector in the penalty box kind of like they did exactly what they did in the oil and gas sector post the oil and gas boom that kind of peaked in 2015. They said, "Okay, you guys were outspending cash flow, poor IRR, low shareholder return." If you look at the oil and gas sector today, I think maybe 70 to 80% of their free cash flow goes to buybacks and dividends or shareholder return. and they've stopped trying to grow their production but really trying to return cash to shareholders and maintain production at a at a profitable level for for investors. I think the gold companies have taken that oil and gas playbook and generalist investors want to know if I buy New Pneumont, if I buy a Nikico, if I buy Barrack and gold prices go up. I want to make sure that actually translates into free cash flow and cash on the balance sheet, dividends and cash in my pocket as a shareholder. And so that's why you're seeing this extreme level of discipline on the mining company's part to show investors that they're not going to go out and do something stupid. Uh not overbuild and overspend capital, but actually return cash to shareholders. As you and I well know, Kai, it's a business where you may have 10 to 12 years of reserves in front of you if you do nothing for 12 years but pay buybacks and dividends. You know, your mind is going to start to deplete and you're going to have to have production shortfalls or your costs are going to go way up as you're mining lower and lower quality or you know or expanding your uh reserve price to mine you know higher costs already would left behind in the past. So there there's a need for this industry to replenish resources and reserves on a regular basis. But we got to find the balance between the go- go growth days from let's say 2008 to 2012 versus the you know I would say overly focused attention on buybacks and dividends and no investment in growth or exploration. So we'll find that happy medium and when that happens the junior stocks perform even better when the senior miners they're well aware that they have to replace their reserves and resources. You're starting to see M&A tick up. You're starting to see you know resource stage or PA stage projects get acquired. I've seen a few of them get acquired recently which is the first I've seen in a while. That's a sign that the majors, they're well aware that they have a an empty cupboard and they have to replenish their their reserves and resources for the future 10, 20, 30 years down the road. So, that'll also be another catalyst for the junior smaller cap stocks to start to follow the larger cap peers higher in this market. >> Yeah, I feel like I'm going to ask you a rhetorical question here, Michael, because your title already gives it away. Strategic investor in the junior mining sector, but value or growth, what what are you what are you aiming for? Are you are you happy or would you be demanding 5 to 6% dividend yield from a bareric from a newmont in our sector or do you think that just doesn't really behoove our space? >> So I have an institutional firm called Bastion Asset Management. So my own capital invests in the micro cap you know subund million junior wild west resource sector u but in the institutional money I invest in producers but my preferred producers are the midcap guys the guys that are producing between let's say 200,000 and a million ounces per year. And when those companies ask me a question, it's yeah, you can pay a 6% dividend, but is what is the what is the IRRa of your next growth investment? So if you can if you have a high quality organic pipeline of investments that have been derisked, the studies are well done, the costs are accurately estimated, which is a problem for many companies in the industry, often have trouble estimating the capital costs and sticking to those numbers uh in the long term. But if you got a 60% IRRa project to expand production, maybe it's a brownfield expansion from 100,000 ounce to 200,000 ounces. The infrastructure is already in place. you've already put the mill in place. You've already got the road, the power. Those are very high RR investments. If you're a mining company saying, "I've got a 60% brownfield expansion to double my production from 100,000 ounces to 200,000 ounces, or I'm going to pay you a 6% dividend," I would much take the brownfield expansion. So, it's it it's really on a case-by case basis. But if you're spending, you know, 6 billion uh building a copper porefree in the Andes somewhere and your IR at the beginning is 15%. Well, that that's a bit of a trickier discussion. Maybe I want that cash back. back. I'll take the guaranteed 6% versus the 15% IR. But in this gold price environment, Kai, there's a lot of projects that have really good IRRs, relatively understood capital cost investments risks that are well known. We should start to see some growth investments and we should start to see a balance of growth and dividends. No, it's not one or the other. It should be a balance between the two. And and the more thoughtful investors will start asking say, "Yeah, 5% dividend is nice, but why are you not actualizing that 80% IR project in your pipeline?" even if it ends up being 40% after costation as cost escalation, it's still a good worthy investment to make. So, I think you're going to start to see the the growth word slowly come back into the investment meetings we're having at Beaver Creek and the future conferences where where growth is not going to be a dirty word anymore, but methodical, well thoughtout, discipline growth, not just the go-go growth we saw in the last gold cycle. >> Yeah, like you touched on two questions I want to ask you like following here in a minute. One is the pipeline. Is there even enough projects to acquire? And the other one is like what do you expect from the conference season coming up here? But be before we get to those two points like I really want to stay on the majors for a second. And Bareric is sitting on 5 billion cash. Actually they have they have a net cash position now of about $und00 million. Uh and Newmont's g grown their their cash stock or cash position from 2.6 billion last June to now $6.2 billion. Like if you were one of the CEOs, like what would you do like for $6.2 billion? Maybe we can combine the the pipeline discussion here with that as well. Like what are you going to buy for $6.2 billion besides like 20 100,000 ounce producers. >> Yeah. I mean I kind of like what Numont's been doing. Um you know to be clear like what they've done has been kind of I what they've been doing is what I actually would be doing which is highrading the portfolio. They've done a lot of asset investors and they said you know what are the 10 assets that can produce 300,000 to 500,000 ounces a year that are most competitive on the cost curve and can be can be durable for the next 10 to 20 years. And if those investments don't fit the criteria, we're going to sell off other investments, delever our balance sheet, buy back stock, and pay dividends. But if I was in the growth mindset or kind of challenging that dynamic, you know, you'd say, well, are there other projects either that we own in the pipeline currently or that are not owned by us that we could acquire that can be more competitive than the 10 assets that we have today producing about 5 million ounces a year. And there's got to be that that kind of like on a hockey team or a soccer team, you know, where is that tension of making the starting 11, right? Right? If you're number 12 on the team, you want to make the starting lineup, you got to have better costs, better growth curve, you know, higher returns. And so, I think those companies are going to start to think about what are the projects that we can acquire or build internally that are going to lower our costs on a global basis and make us more competitive for the next 10, 20 years. And that's what you're going to start to see happen. And that's where you're going to see the the juniors I try to invest in, and I think you probably invest in Kai as well, are the ones that we think that have the potential to have that size to be interesting to a major mining company and also most importantly are going to be competitive on the cost curve. Because if you're a junior saying, "I'm going to have, you know, all the staining costs of $2,400 an ounce and, you know, new milk and new and barracks all sustaining costs are, you know, $18,900." Well, they're not going to buy a company that's got a higher cost profile than what they're already producing. It's got to be better. It's got to be incrementally stronger to enhance it to their portfolio production today. So, really try to focus on assets that have the potential to improve the portfolio production profile of a major mining company and that's those are the ones that going to get acquired and that's how they're going to address I think their their pipeline would be either through internally and externally. You mentioned there has been a lot not been a lot of spending on exploration by the major companies. So majority of them have pretty shabby pipelines visav the size of their companies. They all have assets they want to build but in general their pipelines are pretty depleted. So there's going to be M&A to fill that gap. The problem with that is that the exploration sector has you well know has been starved for capital for 10 years. So a lot of these projects have had a hard time moving forward as well. So there's a lack of quality projects that are are ready to be built. So those projects are going to get acquired or going to get you know very high valuations in the market due to the scarcity of projects that are available for these major mining companies to acquire and eventually the expiration funding window has to open so that these projects that are in the pipeline that could be one day projects for major mining companies to acquire have to go through the steps of value creation and de-risking and we need capital market support to make that happen. >> Yeah, like you you touched on it like there's a lot of there's scarcity in our space at top of my mind. I don't know too many projects that would be shovel ready right now that could be built tomorrow or that are at a decent valuation like in using a soccer term. There not a lot of players on the transfer market right now that would fit the profiles of those companies. I remember when I started out in this space everybody said ah let's 100 10 years 100,000 ounces a year. That was what everybody was looking for. It feels like it's now 10 years 500,000 ounces. And I'm maybe exaggerating a little bit but that hasn't changed. And how many projects exist? Three, four, five that are not tied up in some bigger company right now. What is your estimate there? >> Of that size, the half a million ounce per year plus. Yeah, there's there's a handful that are not yet in production. Maybe maybe 5 to 10 globally that are at different stages, you know, different studies, PA, PFS, DFS. Permitting is also an issue when you get to a project of that size as well, Kai. But I don't want to be derogatory towards the projects that are 100,000, 100,000 a year producers. I mean, not every company's going to be acquired by Niman and Baric. In fact, the majority of acquisitions will not be done by Newmont, Barrack or Nico. They'll be done by the mid-tier mining companies. You're a half a million ounce year producer, a million ounce producer wanting to go to 1.5. So those 150,000 asset, 150,000 ounce per year assets are also quite attractive and they're actually more buyers in that malesiz producing asset category than there are for the mega assets. So there's a scarcity of the of the half a million plus ounce per year projects. Those will get a a really big premium and will probably, you know, transact quickly. Uh but there's also a lot of companies that are able to buy these assets for 100,000 to 150,000 ounces per year, especially if you have either jurisdictional upgrade to the portfolio. So you're in a tier one jurisdiction or you have tier one cost profile. So you're either improving a company's jurisdictional risk, those mid-tier miners that want to get better uh jurisdictional profile. They're producing assets or you're pro assets a very low cost producing asset that will lower their overall cost curve and make them, you know, more competitive and and generate more cash flow in any gold price environment, not just the high gold price environment right now. So it's there's a there's a big acquisition market. We haven't had a lot of M&A in the space for a while. So we've kind of forgotten how acquisitive this space can get. But I really feel that's going to be, you know, hopefully six months from now, a year from now, we're having our second or third since today. We'll be talking about the M&A cycle really heating up because it it has to happen and companies are well positioned for that both in terms of the cash flow they have on their balance sheets and the stock prices improving allows them to do more accretive M&A. >> Yeah, like I've only seen like Torx by Arena Silver. for a measly $26 million. I think they're just being extremely opportunistic here, but not really gamechanging for for a toxic gold for example, right? Like those single asset producers, they will really have to step it up uh in my opinion. Um do you see that happening anytime soon? Like what could be the trigger? Like do we need a trigger for M&A? Like everybody's producing cash left, right, and center? >> Yeah, I think typically the market will will sanction that. So we talked about the growth word. I think you know company like uh you know IM gold successfully brought on Cotay they've now started talking about bit of growth on their conference call and their stock's not going down right so when companies start to talk tox you know talking about growth their stock's not going down so that that gives you a signal like three years ago if tox had done >> a rain of silver acquisition while they were still uh building the expansion of their current mine in my Luna they would have got crucified by the market they would have been beat up by the market saying you shouldn't be doing that every dollar has to go into the expansion we want you to be deleveraging your balance sheet so now investor investors are are are kind of implicitly sanctioning. If you look at the stock prices of the acquiring companies, they're not going down on M&A anymore. So that tells you that investors are are having that more balanced view that we talked about at the beginning of the interview, Kai, which is they want their shareholder return, but they also recognize that the junior market's been so depressed that if you can buy an asset at 0.2 times NAV, or you can buy a company at, you know, $50 to $100 an ounce in the ground when you know your team internally would take you $200 to $250 at least internally to find those type of resources of project of that size and scope. You should be doing that all day long. And so the fact that the market is no longer punishing these stocks for doing M&A is a good first step. When the stocks start to go up on the back of doing smart M&A, that's when the gun will go off and you'll see a lot of companies doing it. And you mentioned earlier, Kai, there is a scarcity. So all these major mining companies, they go to Denver Gold Show, they go to Beaver Creek, they do 60 corporate meetings over three, four days, they're aware of every project on the board and they may have five or six that they like and their attitude over the last six years has been, you know what, I'll get around to it later because that company is having a hard time financing itself. the junior market's dead. Uh we're a logical buyer. But when they see two of their top six projects get acquired in a span of six months, there's only four left on the board in the whiteboard in the office, then it creates a scramble because they go, "If I don't do it now, I got to move quick." That's when the whole space starts to lift. And so do that scarcity. Do the fact they have the means to do it. I do think once you see one or two or three of these bigger deals happen, when I say bigger, I mean two $300 million, $400 million deals in the resource kind of PA stage asset companies, all the companies that have had their eyes on other assets in the space will feel an impetus to move now or miss out. So I think that's what we need to see happen. >> Definitely have to talk about conference expectations in in a second. It's the second time we're touching on the conference season coming up here. But I have one last one like sort of a contrary point to the M&A cycle is just reserve price calculations. I've been looking at bareric $1,500 an ounce for their reserves. If those companies start to repric, I don't the top of my head, I'm sure the the resources will dramatically increase because now all of a sudden they can start mining lower grade material and still produce uh still make money is my point. Um what do you make of that? Like do you have that um do do you look at that at all? Could that be something that sort of delays M&A in our space? >> It's a great question. We probably could talk 15 minutes on it the details. on a bunch of boards of companies that are at that stage now or designing studies. What's the what's the gold price we use? What's the cutoff grade we use? Because >> it's a subtle point, but for non mining sophisticated investors, if you're building a mine plant and let's say your your reserve price is $1,500 gold and you're either doing an open pit or you're doing some underground stoopes and you cut you put the cuto off grade such that anything below that, you know, $1,500 threshold, you're going to leave in the mine. But gold today is $3,400 an ounce US. And so if you're producing let's say 100,000 ounces in a certain stoope over a period of six months or let's say a year and you're leaving behind 50,000 ounces. Yes. Lower grade. Maybe that only makes money at 2,000 or $2,200 gold. The private investor, you and I, if we own that company privately, we didn't have public investors and shareholders to report our results to, we'd say, we'd be stupid. You're literally leaving money in the ground. You're you're going through a stoope where you're leaving dilution material that you would leave behind that's actually cash flow positive. And so we're going to get to a point in the industry where we're going to start to have some difficult decisions to make. Do we do we take that additional ore? Do we we increase our reserve price which basically means you're lowering your cutoff grade, right? And do we mine the extra ounces that we know are there? But what the impact is going to be is you're going to see ASIC all sustaining costs go higher for the large companies that choose to do that. So, are investors ready to see a 21 or $22 ASIC for for Bareric, Newman, and Nico on some of these projects because they're taking ounces that they otherwise would have left behind as waste, but they're cash flow generating or do investors want to see them keep their cost low and just leave that gold in the ground and not talk about it for later. So, that is that's the argument we're going to have. And so, in terms of extending mine life, yes, if you lower your reserve, if you increase your reserve price, lower your cutoff grade, right, you will extend your mine life, but the trade-off is your costs are going to go higher. And investors today are extremely focused on margin expansion and making sure companies can hold the line on cost. So they're going to have to do a really good communication job to explain we're not losing control of costs. We're not back to GNA cycles where we're spending lots of money on GNA or wage inflation or labor inflation. We're just taking gold that otherwise would be waste out of the ground. What do you want us to do shareholder? You know, that's going to be a tricky discussion. So there's there's no easy way out to answer your question originally would be yes, you can raise your reserve price, but your costs are going to go higher. That's why these companies are much more interested probably in acquiring those tier one assets that have both the size and low cost profile, building a new mine where you know you've got, you know, $1,200 ASIC for for 15 20 years locked in rather than going to mine the stuff that was waste in your previous mine plan that could be or today at higher gold prices. But there's going to be a lot of that and we got to be ready as an industry to see that and be sophisticated enough to to differentiate between what's real cost inflation and what's just increasing your production or your reserve life by mining gold that would otherwise be left behind. >> I've had a guest on Derek Bower. He's a University of uh finance, a professor of finance at the University of Western Australia and he he told me that the the the grades haven't dropped off yet uh for the big producers. So, I think we're still they're still doing the right thing or they're still scared to change anything. As you said, they're probably playing the margin narrative still, which is doing great things for them. Uh, Michael, we've only like 5 minutes left, which is absolutely insane. Uh, let's talk conference expectations. Maybe I'll start us off cuz I've been scrolling through a list of one of the upcoming conferences and I have to say I wasn't too excited because all those names I was like, I've heard them before. I've seen them before. Not much new. Like, what is your take on all of this? I I always take a call. It's amazing how especially in the junior space um how one discovery hole, how a new management team, how a new way of looking at a project can really, you know, transform the value of a project or the perspective of a project. You're right. We we we haven't talked about Kai, we haven't seen a major funding cycle for green field exploration. Even myself, I've been a little reluctant to to to fund just pure green field, you know, first drill hole into a new, you know, geohysical anomaly type project. mainly because the proven discoveries and the resources and the PA stage products have traded at such low valuations until recently that doesn't make much sense to fund a $10 million swing for the fences uh new exploration target story when you can buy a million or 2 million ounces already in the ground for 1050 million market cap. So we have not seen really any green field exploration or very very little. It's been very hard to raise money for that space. So that's probably why you're looking at the list going I've seen all these companies before. But in my own portfolio and other names I know, there's been real improvements both in the management team quality and some new discoveries that are made in an existing project. And those are actually my favorite discoveries, Kai. Like I love finding a project that's got a million ounces or two million ounces already in the books and they step out and find a new high-grade zone or they they find out the project now has potential to grow to three or four five million ounces where otherwise it was thought to be a smaller smaller kind of boutique type size deposit. So when you make a new discovery in an existing area, the the hurdle for that project becoming economic is much much lower than sticking a brand new hole in the Yukon or you know northern Quebec somewhere where you have to find 5 million ounces from scratch to make the project work. So I I'm very much focused on the companies that I that have already been around for a while that maybe are are seeing rejuvenation or or new discoveries. And I think the new discoveries and new exploration stories will start to come once the valuation of the junior exploration market currently the current companies existing have higher valuations to provide that support for for grain field exploration coming. >> Yeah, it's interesting because usually in the lithium space lithium moves like say $10,000 or 10,000 yuan what is it per ton or whatever it is I don't even know. Uh all of a sudden there's five new juniors on the CSSE right but in gold I haven't really seen that happen. Like maybe the cycle just takes longer and maybe there are not enough projects. for example, I haven't seen anything really new come out of Nevada in a long time. >> Um, which is a bit shocking in my opinion. Uh, because that's one of the hot beds of exploration usually, but nothing new. Like any any like any inkling why that is? Is it really just a funding situation that >> I think it's been the funding? The lithium market really got redot and the the the funding market opened like we have yet to see in the gold market. Like it was just, you know, you had a you had promising looking moose pasture. you know, $50 million mark cap on the Australian stock market, right, for a lithium name because the market was just so keyed in on that, you know, EV transition, shortage of lithium, gold. That that's another proof. Earlier we asked what anyway, that's proving to me that we're really still very early in this gold cycle, Kai. Like, we're not getting any of that in the gold market at all today. Um, I also do like areas that are less explored. Nevada's a great area, but I do like areas that are are less explored. You know, Newfoundland's a great area. I'm spending a lot of time there recently because, you know, the amount of money has gone to Newf Finland is is a small fraction per 1% or less of what's gone to Nevada over the years. So, your chance to make a new discovery in an area that's showing promise already, you know, new mine getting built there. There's already discoveries is much much higher in an area that's been less picked over than an area like Nevada. You'll still make great discoveries in Nevada. I mean, Barrack's four mile project is uh is very impressive and will continue to grow, but I prefer areas that are less picked over that have good infrastructure, good tier one locations. Uh but we'll we'll make new discoveries, but we need the funding. I mean expiration is a very capital intensive business and if without the funding market there to do it which is again it's a good thing it shows less supply scarcity all those things you talked about in this interview is fed by the lack of funding. Yeah, like we've been laying out bold cases here, left, right, and center now for the space and I think it's obvious that we still have a long way to go and we've mentioned it both a couple of times now, but m maybe last minute here. What are some of the bare cases or what is the bare case for our sector? Like we always talk about the the positives and the ups and what is something that could derail our old sector here right now? >> So on on the gold specific side, I would say you know more fiscal discipline in the US. So I think the last, you know, Fed speak from Jackson Hole this past week uh was positive. Like if if the US government said we're gonna we're gonna or the Fed said we're going to fight inflation, you know, with higher rates and we want a strong US dollar and we're going to but I you we said that before. I don't see the math behind that being able to work. The US government is going to have a very hard time affording 37 38 trillion of debt times 5% uh bond yields. It just doesn't the math doesn't work from a from a financial uh payments perspective. So that's but if you ever saw a real hard strengthening of the US dollar uh if you saw a real tightening of the US spending situation you know Elon Musk came in like him or not like him he was probably the best shot the US had at getting real efficient and and getting some real savings and cost cutting in the US government. he only lasted a few months, right? So, >> I think Elon Musk is one of the smartest guys in the world and if one of the smartest guys in the world tries for three, four months and throws his hands up and says, "I I can't do this." Um, you know, it's too hard. Then I don't know there's a lot of hope for cutting US spending going forward in the future. But to me, my my risk on gold would be real like we're cutting the US spending by a trillion or two trillion dollars a year. Not 100 billion, 200 billion with much fanfare and then going back to cut taxes and increase deficit by a trillion dollars after that. So real fiscal discipline, a hard strengthening of the US dollar, which recent Fed speak would indicate the opposite. They're looking to probably light cut rates and probably realize they need inflation, you know, to to float their debt. That would be the two kind of goal specific things I'd be worried about. And then the the market specific thing would just be we've talked about needing a rollover in the tech stocks to kind of create a rotation of money from tech into mining. Well, if the tech market rolls over, the stock market's going to roll over because tech is lion's share of the stock market these days. So that any correction in the market, gold equities are equities, right? Their stocks first and their gold second. But they will have a little sell off on a on a market sell off and probably the first ones to rally like they did during COVID. So that would be a kind of a short-term risk. But longer term macro-wise, because I'm so exposed to the spectre personally, uh I'm always thinking about what could go wrong and and for now I have not seen any governments or any fiscal actions that would have kind of derailed my whole thesis at this point in time. >> Fantastic. Michael, really appreciate the conversation with you. Um, you're going to be in Europe actually here in uh, I don't know, 6 weeks or so. Tell us about that. Why are you coming out? >> Yeah, I'm going to be in Europe from October 6th to 10th. Uh, it's been a long time since I've been to Europe. I haven't been there professionally with mining companies ever actually. So, it's been my first time to interact with European investors. Uh, I love the European market. A lot of good European investors and many of the junior mining companies I've invested in long-term money. They understand uh, gold as a as a real currency, as preserver of wealth, especially in hyperinflationary environments. So, very excited to go. I'm going to be in London, uh, Paris, Zurich, Geneva, and Frankfurt for five days in a row. I'm bringing uh, six of my largest junior mining companies with me on this tour. Uh, so you get to meet six companies. I'm going to do a keynote presentation in each city, talk about my macro view, a bit of my outlook for for the markets, and as well as why I'm invested in these six companies, giving investors an inside look on how I allocate capital, how I invest money in the junior mining sector, and hopefully getting to meet a lot of great people on this five-day tour. >> Yeah. Well, you're going to meet me in Frankfurt, so check. >> Looking forward to it. Saving best for last here. Absolutely. Michael, really appreciate you coming on. Great insights. We could talk for hours about the junior mining space. There's so many nuances. We know so many of the same people. Uh so it'd be fun. I can't wait to actually may probably see you in Beaver Creek as well, but that's just going to be a zoo. Uh we'll probably be just high-fiving each other on the escalators there. But uh no, Michael, appreciate you coming on and looking forward to seeing you in Beaver Creek. And everybody else, thanks so much for tuning in to Soar Financially. As you've heard, we're early third inning at best here in the junior mining or in the mining space at all. Newmont up 91%. It's just the beginning. GDX, GDXJ in particular still have a long, long way to go. Let me know what you think. How are you positioned? Are you looking at mining stocks at all or is this just a waste of your time? Really, let us know. We do want to hear from you. Put it in the comments down below and don't forget to hit that like and subscribe button. Thank you so much for tuning in. We'll be back with lots more. Take care out there. [Music]
GOLD Bull Run: You Are Not Too Late YET | Michael Gentile
Summary
Transcript
Did you miss the boat in miners already? Pneumont is the second best performing stock in the S&P S&P 500 year to date. 91% year-to- date performance, which is absolutely fantastic. And Newmont is closing the gap to Palanteer fast. It is happening. It's catching up. It might be holding the top spot by the end of the year. We'll see. Margins are trending the right way. $3,300 gold on average in Q2. The financials have been phenomenal for the miners. And I've invited a guest on to discuss like where is this headed? What where are we in the cycle and what is sentiment in the mining and junior mining space in particular. His name is Michael Gentil. He's a strategic investor in the junior mining space. We've had him on about 5 months ago and we said we're just at the beginning of it all. So we're we we'll check in see what the temperature is and where are we at. Before I switch over to my guest, hit that like and subscribe button. It helps us out tremendously and we much much appreciate the support. Thanks so much for doing that. Now Michael, it is great to have you back on the show. Oh, it's good to see you. How are you? >> Good. Good to see you. >> Yeah, likewise. Likewise. How was your summer? Excited? >> It was fun. Yeah. Kids went back to school today, so it's a good day. >> It's a good day. Yeah. We're like I I use the saying like Monday the weekends start on Mondays, right? So So we we'll I'm not sure how that reflects back after vacation and long breaks like Canada, what is it? Two months off at least. So >> a long summer here. Yeah, >> it is a long summer. Well, um, Michael, we spoke about 5 months ago and we were a bit I wouldn't say gloomy, but we were like our you euphoria was we had the handbrake on still like when it came to it. Now we've seen Q2 financial come out and the mining stocks are running. Um, let's start with a basic question Michael like what is sentiment right now? What is currently the the state of affairs in the mining space? >> Yeah, it's interesting and I've been talking for two years now Kai. We've been seeing the gradual improvement, expected improvement in margins that we're now seeing in the Q2 financials. We saw Q1, Q4. You know, I said it's going to take a couple of quarters for the journalist investors to start see that cash flow show up on the balance sheets. Uh the free cash flow generation, the margin expansion. We're seeing it, as you mentioned in the intro, with companies like Pneumont generating huge amount of cash. The stocks are performing much much better. So, we're starting to see that interest return especially towards the mega cap stocks, the larger cap stocks in the spectre, the Numonts, the Agniko EOS of the world. uh and is starting slowly to filter down to more of our Universe Kai, which is the junior exploration and resource development stocks, but I still think we're we're quite early. You know, you mentioned New Pneumont's up 91% year to date, but the GDX, which is the large cap, you know, mining ETF, only just recently hit the levels it was in 2010 2011. So, it's only gone back to where gold was $2,000 an ounce. When you think about all the money printing that's gone on, all the devaluation of paper money on a real basis, on a real inflation adjusted basis, we're still well well below the old highs. So, if we were talking last time, Kai, maybe the first or second inning, maybe we're in the second or third inning today, to use baseball analogy. So, we're still very early, but as I mentioned our last interview, the stars are aligning. And what's nice to see is the price action is starting to line up with those fundamentals. The volumes are picking up, the stocks are trading a little better, the financing is getting a little easier uh for the junior companies. Still not easy, but it's getting a little easier. So, yeah, we're just seeing a gradual warming up and percolating the sector, but I I still strongly believe we're we're still very early days in this rally. >> Yeah, absolutely. Hey, like we use the term we're on the doorstep of a major rally and I think we're still maybe we got one foot in the door now. Uh we haven't really busted through yet. Um what do you think is still missing to to really like set the dominoes in motion here? >> So you mentioned, you know, pneumont vying for top spot in the S&P and I've been saying for a while that we need to see the tech stocks roll over. So there's been a lot of money chasing, you know, crypto and tech stocks and AI. It reminds me, Kai, a lot of the late 90s where you had the old economy stocks as they called them back then that were generating really good cash flow, had really good fundamentals, but they were basically ignored by the market because everybody had their eyes on the dotcoms. And you know, the internet ended up being even bigger than people dreamed of during the com boom, but most of the dot stocks end up being terrible investments. And when that dot rally rolled over, as you may recall, that kicked off like a 10 to 15 year bull market in commodities. So the fundamentals were percolating nicely in the late 90s for many commodities but the sector was the market was very distracted by the shiny toy of.com. So I think what we need to have happen is that tech outperformance either slow down or outright start to go down these tech stocks and then investors will rotate say what is actually the leading sector in terms of fundamentals, cash flow generation, stability, earnings profile. We need to see more rotation of capital out of tech into mining. uh the price action we're seeing this year is excellent because you know fund flows follow returns. So the fact the sector is performing better on a percentage basis, return basis this year is a good thing. But we need to see the tech momentum slow down and and right now gold's outperforming tech this year. People are still making money in tech. When they start to lose money in tech, they'll start to think, okay, this is starting to hurt me now. Where where can I make money? Where where's the next, you know, boat to get on? And I think the gold sector is lining up as a nice, you know, lifeboat for some of those tech investors that have had a great run, maybe start to lose some money in that space going forward. >> Yeah. the week after liberation day when the S&P went down to 4,800 points, I was like, "Yes, finally." Uh, a losing year in the S&P 500. Maybe some of that money will finally rotate into the mining space. Uh, well, now the S&P is back at 6,400 and that rotation hasn't really taken shape yet. Palanteer is the top of the list in the S&P 500 right now. So, that full-on tech rollover hasn't happened yet. U, Michael, but we're we're in the right. I think we discussed this before and I I said it before. We need to scare the 401k money into starting to move here. That you haven't really seen that take shape yet, have we? >> No. And I think another key point is like you talked about Numont. Pneumont's market cap as of this morning is $80 billion. You know, Nvidia's knocking on four trillion. Microsoft's 4 trillion. So, you remind your viewers again um how small the mining sector is. Despite gold, you know, reassur reassuting its role as a reserve currency. is now the second largest holding of the central banks behind the US dollar. It's about 20 25% in central bank balance sheets today with the price appreciation we've seen in gold. So despite the critical nature of gold that's now playing in the financial monetary system again which never really stopped but people are paying attention to it again and despite the critical nature of copper and all these EV you know metals critical metals that you're seeing Donald Trump do many many things to try to uh assure the US security or independence on critical metals the sector is so so small. So the sector that's feeding the global financial system in terms of stability of central bank balance sheets and the sector that's feeding the AI boom without people knowing it in terms of the technology the materials and metals required to fuel that power grid and all the AI data center buildout. The sector is so so tiny. I mean you could take I think it's Microsoft or Nvidia you could buy the whole mining sector two times over just with one of those companies. The entire global equities of all mining stocks globally. So it just shows you how small our sector is on a relative basis. And so when we do see some of that rotation, you know, 10% in Nvidia, 10% Nvidia fell by 10% that's $400 billion. If that money came into the mining sector, you'd see a huge upturn in these stocks. So very very small amount of money could dramatically move the sector. And the market caps in the sector are very very small relative to other sectors of crucial importance to the global economy. So I think that is the next key wave is the rotation of capital into this sector out of the other larger, you know, more liquid sectors in the market today. >> Yeah. Like one comment I heard uh somebody make before like he was comparing Exxon the oil companies to our space the mining space is well the dividend yields are way higher than in our sector. Um Neil Adset has done some work recently on the H1 financials of the of some of the 32 largest mining companies and he said like 5.6 billion US have been returned to shareholders in form of dividends and buybacks in the first half of the year. Um and only 1 billion has been spent on expiration. Like we can talk about the expiration side in a second but I'm curious like what what is your take? what does the dividend yield or what does it take to attract those generalists from that let's say value perspective to convince them hey this is a value play I'm getting my three four five 6% um it doesn't seem like we're there yet I mean I think it's very important and and I think you're right companies are overinvesting or overallocating capital to buy back some dividends because during the last upturn Kais you all remember right when gold went to $2,000 an ounce it was a it was a big party it was a it was a basically a bubble in the gold sector last time lots of poorly thought out M&A, not a lot of capital discipline, uh, investing in low irra projects. So the the generalist investors, you know, kind of put the mining sector in the penalty box kind of like they did exactly what they did in the oil and gas sector post the oil and gas boom that kind of peaked in 2015. They said, "Okay, you guys were outspending cash flow, poor IRR, low shareholder return." If you look at the oil and gas sector today, I think maybe 70 to 80% of their free cash flow goes to buybacks and dividends or shareholder return. and they've stopped trying to grow their production but really trying to return cash to shareholders and maintain production at a at a profitable level for for investors. I think the gold companies have taken that oil and gas playbook and generalist investors want to know if I buy New Pneumont, if I buy a Nikico, if I buy Barrack and gold prices go up. I want to make sure that actually translates into free cash flow and cash on the balance sheet, dividends and cash in my pocket as a shareholder. And so that's why you're seeing this extreme level of discipline on the mining company's part to show investors that they're not going to go out and do something stupid. Uh not overbuild and overspend capital, but actually return cash to shareholders. As you and I well know, Kai, it's a business where you may have 10 to 12 years of reserves in front of you if you do nothing for 12 years but pay buybacks and dividends. You know, your mind is going to start to deplete and you're going to have to have production shortfalls or your costs are going to go way up as you're mining lower and lower quality or you know or expanding your uh reserve price to mine you know higher costs already would left behind in the past. So there there's a need for this industry to replenish resources and reserves on a regular basis. But we got to find the balance between the go- go growth days from let's say 2008 to 2012 versus the you know I would say overly focused attention on buybacks and dividends and no investment in growth or exploration. So we'll find that happy medium and when that happens the junior stocks perform even better when the senior miners they're well aware that they have to replace their reserves and resources. You're starting to see M&A tick up. You're starting to see you know resource stage or PA stage projects get acquired. I've seen a few of them get acquired recently which is the first I've seen in a while. That's a sign that the majors, they're well aware that they have a an empty cupboard and they have to replenish their their reserves and resources for the future 10, 20, 30 years down the road. So, that'll also be another catalyst for the junior smaller cap stocks to start to follow the larger cap peers higher in this market. >> Yeah, I feel like I'm going to ask you a rhetorical question here, Michael, because your title already gives it away. Strategic investor in the junior mining sector, but value or growth, what what are you what are you aiming for? Are you are you happy or would you be demanding 5 to 6% dividend yield from a bareric from a newmont in our sector or do you think that just doesn't really behoove our space? >> So I have an institutional firm called Bastion Asset Management. So my own capital invests in the micro cap you know subund million junior wild west resource sector u but in the institutional money I invest in producers but my preferred producers are the midcap guys the guys that are producing between let's say 200,000 and a million ounces per year. And when those companies ask me a question, it's yeah, you can pay a 6% dividend, but is what is the what is the IRRa of your next growth investment? So if you can if you have a high quality organic pipeline of investments that have been derisked, the studies are well done, the costs are accurately estimated, which is a problem for many companies in the industry, often have trouble estimating the capital costs and sticking to those numbers uh in the long term. But if you got a 60% IRRa project to expand production, maybe it's a brownfield expansion from 100,000 ounce to 200,000 ounces. The infrastructure is already in place. you've already put the mill in place. You've already got the road, the power. Those are very high RR investments. If you're a mining company saying, "I've got a 60% brownfield expansion to double my production from 100,000 ounces to 200,000 ounces, or I'm going to pay you a 6% dividend," I would much take the brownfield expansion. So, it's it it's really on a case-by case basis. But if you're spending, you know, 6 billion uh building a copper porefree in the Andes somewhere and your IR at the beginning is 15%. Well, that that's a bit of a trickier discussion. Maybe I want that cash back. back. I'll take the guaranteed 6% versus the 15% IR. But in this gold price environment, Kai, there's a lot of projects that have really good IRRs, relatively understood capital cost investments risks that are well known. We should start to see some growth investments and we should start to see a balance of growth and dividends. No, it's not one or the other. It should be a balance between the two. And and the more thoughtful investors will start asking say, "Yeah, 5% dividend is nice, but why are you not actualizing that 80% IR project in your pipeline?" even if it ends up being 40% after costation as cost escalation, it's still a good worthy investment to make. So, I think you're going to start to see the the growth word slowly come back into the investment meetings we're having at Beaver Creek and the future conferences where where growth is not going to be a dirty word anymore, but methodical, well thoughtout, discipline growth, not just the go-go growth we saw in the last gold cycle. >> Yeah, like you touched on two questions I want to ask you like following here in a minute. One is the pipeline. Is there even enough projects to acquire? And the other one is like what do you expect from the conference season coming up here? But be before we get to those two points like I really want to stay on the majors for a second. And Bareric is sitting on 5 billion cash. Actually they have they have a net cash position now of about $und00 million. Uh and Newmont's g grown their their cash stock or cash position from 2.6 billion last June to now $6.2 billion. Like if you were one of the CEOs, like what would you do like for $6.2 billion? Maybe we can combine the the pipeline discussion here with that as well. Like what are you going to buy for $6.2 billion besides like 20 100,000 ounce producers. >> Yeah. I mean I kind of like what Numont's been doing. Um you know to be clear like what they've done has been kind of I what they've been doing is what I actually would be doing which is highrading the portfolio. They've done a lot of asset investors and they said you know what are the 10 assets that can produce 300,000 to 500,000 ounces a year that are most competitive on the cost curve and can be can be durable for the next 10 to 20 years. And if those investments don't fit the criteria, we're going to sell off other investments, delever our balance sheet, buy back stock, and pay dividends. But if I was in the growth mindset or kind of challenging that dynamic, you know, you'd say, well, are there other projects either that we own in the pipeline currently or that are not owned by us that we could acquire that can be more competitive than the 10 assets that we have today producing about 5 million ounces a year. And there's got to be that that kind of like on a hockey team or a soccer team, you know, where is that tension of making the starting 11, right? Right? If you're number 12 on the team, you want to make the starting lineup, you got to have better costs, better growth curve, you know, higher returns. And so, I think those companies are going to start to think about what are the projects that we can acquire or build internally that are going to lower our costs on a global basis and make us more competitive for the next 10, 20 years. And that's what you're going to start to see happen. And that's where you're going to see the the juniors I try to invest in, and I think you probably invest in Kai as well, are the ones that we think that have the potential to have that size to be interesting to a major mining company and also most importantly are going to be competitive on the cost curve. Because if you're a junior saying, "I'm going to have, you know, all the staining costs of $2,400 an ounce and, you know, new milk and new and barracks all sustaining costs are, you know, $18,900." Well, they're not going to buy a company that's got a higher cost profile than what they're already producing. It's got to be better. It's got to be incrementally stronger to enhance it to their portfolio production today. So, really try to focus on assets that have the potential to improve the portfolio production profile of a major mining company and that's those are the ones that going to get acquired and that's how they're going to address I think their their pipeline would be either through internally and externally. You mentioned there has been a lot not been a lot of spending on exploration by the major companies. So majority of them have pretty shabby pipelines visav the size of their companies. They all have assets they want to build but in general their pipelines are pretty depleted. So there's going to be M&A to fill that gap. The problem with that is that the exploration sector has you well know has been starved for capital for 10 years. So a lot of these projects have had a hard time moving forward as well. So there's a lack of quality projects that are are ready to be built. So those projects are going to get acquired or going to get you know very high valuations in the market due to the scarcity of projects that are available for these major mining companies to acquire and eventually the expiration funding window has to open so that these projects that are in the pipeline that could be one day projects for major mining companies to acquire have to go through the steps of value creation and de-risking and we need capital market support to make that happen. >> Yeah, like you you touched on it like there's a lot of there's scarcity in our space at top of my mind. I don't know too many projects that would be shovel ready right now that could be built tomorrow or that are at a decent valuation like in using a soccer term. There not a lot of players on the transfer market right now that would fit the profiles of those companies. I remember when I started out in this space everybody said ah let's 100 10 years 100,000 ounces a year. That was what everybody was looking for. It feels like it's now 10 years 500,000 ounces. And I'm maybe exaggerating a little bit but that hasn't changed. And how many projects exist? Three, four, five that are not tied up in some bigger company right now. What is your estimate there? >> Of that size, the half a million ounce per year plus. Yeah, there's there's a handful that are not yet in production. Maybe maybe 5 to 10 globally that are at different stages, you know, different studies, PA, PFS, DFS. Permitting is also an issue when you get to a project of that size as well, Kai. But I don't want to be derogatory towards the projects that are 100,000, 100,000 a year producers. I mean, not every company's going to be acquired by Niman and Baric. In fact, the majority of acquisitions will not be done by Newmont, Barrack or Nico. They'll be done by the mid-tier mining companies. You're a half a million ounce year producer, a million ounce producer wanting to go to 1.5. So those 150,000 asset, 150,000 ounce per year assets are also quite attractive and they're actually more buyers in that malesiz producing asset category than there are for the mega assets. So there's a scarcity of the of the half a million plus ounce per year projects. Those will get a a really big premium and will probably, you know, transact quickly. Uh but there's also a lot of companies that are able to buy these assets for 100,000 to 150,000 ounces per year, especially if you have either jurisdictional upgrade to the portfolio. So you're in a tier one jurisdiction or you have tier one cost profile. So you're either improving a company's jurisdictional risk, those mid-tier miners that want to get better uh jurisdictional profile. They're producing assets or you're pro assets a very low cost producing asset that will lower their overall cost curve and make them, you know, more competitive and and generate more cash flow in any gold price environment, not just the high gold price environment right now. So it's there's a there's a big acquisition market. We haven't had a lot of M&A in the space for a while. So we've kind of forgotten how acquisitive this space can get. But I really feel that's going to be, you know, hopefully six months from now, a year from now, we're having our second or third since today. We'll be talking about the M&A cycle really heating up because it it has to happen and companies are well positioned for that both in terms of the cash flow they have on their balance sheets and the stock prices improving allows them to do more accretive M&A. >> Yeah, like I've only seen like Torx by Arena Silver. for a measly $26 million. I think they're just being extremely opportunistic here, but not really gamechanging for for a toxic gold for example, right? Like those single asset producers, they will really have to step it up uh in my opinion. Um do you see that happening anytime soon? Like what could be the trigger? Like do we need a trigger for M&A? Like everybody's producing cash left, right, and center? >> Yeah, I think typically the market will will sanction that. So we talked about the growth word. I think you know company like uh you know IM gold successfully brought on Cotay they've now started talking about bit of growth on their conference call and their stock's not going down right so when companies start to talk tox you know talking about growth their stock's not going down so that that gives you a signal like three years ago if tox had done >> a rain of silver acquisition while they were still uh building the expansion of their current mine in my Luna they would have got crucified by the market they would have been beat up by the market saying you shouldn't be doing that every dollar has to go into the expansion we want you to be deleveraging your balance sheet so now investor investors are are are kind of implicitly sanctioning. If you look at the stock prices of the acquiring companies, they're not going down on M&A anymore. So that tells you that investors are are having that more balanced view that we talked about at the beginning of the interview, Kai, which is they want their shareholder return, but they also recognize that the junior market's been so depressed that if you can buy an asset at 0.2 times NAV, or you can buy a company at, you know, $50 to $100 an ounce in the ground when you know your team internally would take you $200 to $250 at least internally to find those type of resources of project of that size and scope. You should be doing that all day long. And so the fact that the market is no longer punishing these stocks for doing M&A is a good first step. When the stocks start to go up on the back of doing smart M&A, that's when the gun will go off and you'll see a lot of companies doing it. And you mentioned earlier, Kai, there is a scarcity. So all these major mining companies, they go to Denver Gold Show, they go to Beaver Creek, they do 60 corporate meetings over three, four days, they're aware of every project on the board and they may have five or six that they like and their attitude over the last six years has been, you know what, I'll get around to it later because that company is having a hard time financing itself. the junior market's dead. Uh we're a logical buyer. But when they see two of their top six projects get acquired in a span of six months, there's only four left on the board in the whiteboard in the office, then it creates a scramble because they go, "If I don't do it now, I got to move quick." That's when the whole space starts to lift. And so do that scarcity. Do the fact they have the means to do it. I do think once you see one or two or three of these bigger deals happen, when I say bigger, I mean two $300 million, $400 million deals in the resource kind of PA stage asset companies, all the companies that have had their eyes on other assets in the space will feel an impetus to move now or miss out. So I think that's what we need to see happen. >> Definitely have to talk about conference expectations in in a second. It's the second time we're touching on the conference season coming up here. But I have one last one like sort of a contrary point to the M&A cycle is just reserve price calculations. I've been looking at bareric $1,500 an ounce for their reserves. If those companies start to repric, I don't the top of my head, I'm sure the the resources will dramatically increase because now all of a sudden they can start mining lower grade material and still produce uh still make money is my point. Um what do you make of that? Like do you have that um do do you look at that at all? Could that be something that sort of delays M&A in our space? >> It's a great question. We probably could talk 15 minutes on it the details. on a bunch of boards of companies that are at that stage now or designing studies. What's the what's the gold price we use? What's the cutoff grade we use? Because >> it's a subtle point, but for non mining sophisticated investors, if you're building a mine plant and let's say your your reserve price is $1,500 gold and you're either doing an open pit or you're doing some underground stoopes and you cut you put the cuto off grade such that anything below that, you know, $1,500 threshold, you're going to leave in the mine. But gold today is $3,400 an ounce US. And so if you're producing let's say 100,000 ounces in a certain stoope over a period of six months or let's say a year and you're leaving behind 50,000 ounces. Yes. Lower grade. Maybe that only makes money at 2,000 or $2,200 gold. The private investor, you and I, if we own that company privately, we didn't have public investors and shareholders to report our results to, we'd say, we'd be stupid. You're literally leaving money in the ground. You're you're going through a stoope where you're leaving dilution material that you would leave behind that's actually cash flow positive. And so we're going to get to a point in the industry where we're going to start to have some difficult decisions to make. Do we do we take that additional ore? Do we we increase our reserve price which basically means you're lowering your cutoff grade, right? And do we mine the extra ounces that we know are there? But what the impact is going to be is you're going to see ASIC all sustaining costs go higher for the large companies that choose to do that. So, are investors ready to see a 21 or $22 ASIC for for Bareric, Newman, and Nico on some of these projects because they're taking ounces that they otherwise would have left behind as waste, but they're cash flow generating or do investors want to see them keep their cost low and just leave that gold in the ground and not talk about it for later. So, that is that's the argument we're going to have. And so, in terms of extending mine life, yes, if you lower your reserve, if you increase your reserve price, lower your cutoff grade, right, you will extend your mine life, but the trade-off is your costs are going to go higher. And investors today are extremely focused on margin expansion and making sure companies can hold the line on cost. So they're going to have to do a really good communication job to explain we're not losing control of costs. We're not back to GNA cycles where we're spending lots of money on GNA or wage inflation or labor inflation. We're just taking gold that otherwise would be waste out of the ground. What do you want us to do shareholder? You know, that's going to be a tricky discussion. So there's there's no easy way out to answer your question originally would be yes, you can raise your reserve price, but your costs are going to go higher. That's why these companies are much more interested probably in acquiring those tier one assets that have both the size and low cost profile, building a new mine where you know you've got, you know, $1,200 ASIC for for 15 20 years locked in rather than going to mine the stuff that was waste in your previous mine plan that could be or today at higher gold prices. But there's going to be a lot of that and we got to be ready as an industry to see that and be sophisticated enough to to differentiate between what's real cost inflation and what's just increasing your production or your reserve life by mining gold that would otherwise be left behind. >> I've had a guest on Derek Bower. He's a University of uh finance, a professor of finance at the University of Western Australia and he he told me that the the the grades haven't dropped off yet uh for the big producers. So, I think we're still they're still doing the right thing or they're still scared to change anything. As you said, they're probably playing the margin narrative still, which is doing great things for them. Uh, Michael, we've only like 5 minutes left, which is absolutely insane. Uh, let's talk conference expectations. Maybe I'll start us off cuz I've been scrolling through a list of one of the upcoming conferences and I have to say I wasn't too excited because all those names I was like, I've heard them before. I've seen them before. Not much new. Like, what is your take on all of this? I I always take a call. It's amazing how especially in the junior space um how one discovery hole, how a new management team, how a new way of looking at a project can really, you know, transform the value of a project or the perspective of a project. You're right. We we we haven't talked about Kai, we haven't seen a major funding cycle for green field exploration. Even myself, I've been a little reluctant to to to fund just pure green field, you know, first drill hole into a new, you know, geohysical anomaly type project. mainly because the proven discoveries and the resources and the PA stage products have traded at such low valuations until recently that doesn't make much sense to fund a $10 million swing for the fences uh new exploration target story when you can buy a million or 2 million ounces already in the ground for 1050 million market cap. So we have not seen really any green field exploration or very very little. It's been very hard to raise money for that space. So that's probably why you're looking at the list going I've seen all these companies before. But in my own portfolio and other names I know, there's been real improvements both in the management team quality and some new discoveries that are made in an existing project. And those are actually my favorite discoveries, Kai. Like I love finding a project that's got a million ounces or two million ounces already in the books and they step out and find a new high-grade zone or they they find out the project now has potential to grow to three or four five million ounces where otherwise it was thought to be a smaller smaller kind of boutique type size deposit. So when you make a new discovery in an existing area, the the hurdle for that project becoming economic is much much lower than sticking a brand new hole in the Yukon or you know northern Quebec somewhere where you have to find 5 million ounces from scratch to make the project work. So I I'm very much focused on the companies that I that have already been around for a while that maybe are are seeing rejuvenation or or new discoveries. And I think the new discoveries and new exploration stories will start to come once the valuation of the junior exploration market currently the current companies existing have higher valuations to provide that support for for grain field exploration coming. >> Yeah, it's interesting because usually in the lithium space lithium moves like say $10,000 or 10,000 yuan what is it per ton or whatever it is I don't even know. Uh all of a sudden there's five new juniors on the CSSE right but in gold I haven't really seen that happen. Like maybe the cycle just takes longer and maybe there are not enough projects. for example, I haven't seen anything really new come out of Nevada in a long time. >> Um, which is a bit shocking in my opinion. Uh, because that's one of the hot beds of exploration usually, but nothing new. Like any any like any inkling why that is? Is it really just a funding situation that >> I think it's been the funding? The lithium market really got redot and the the the funding market opened like we have yet to see in the gold market. Like it was just, you know, you had a you had promising looking moose pasture. you know, $50 million mark cap on the Australian stock market, right, for a lithium name because the market was just so keyed in on that, you know, EV transition, shortage of lithium, gold. That that's another proof. Earlier we asked what anyway, that's proving to me that we're really still very early in this gold cycle, Kai. Like, we're not getting any of that in the gold market at all today. Um, I also do like areas that are less explored. Nevada's a great area, but I do like areas that are are less explored. You know, Newfoundland's a great area. I'm spending a lot of time there recently because, you know, the amount of money has gone to Newf Finland is is a small fraction per 1% or less of what's gone to Nevada over the years. So, your chance to make a new discovery in an area that's showing promise already, you know, new mine getting built there. There's already discoveries is much much higher in an area that's been less picked over than an area like Nevada. You'll still make great discoveries in Nevada. I mean, Barrack's four mile project is uh is very impressive and will continue to grow, but I prefer areas that are less picked over that have good infrastructure, good tier one locations. Uh but we'll we'll make new discoveries, but we need the funding. I mean expiration is a very capital intensive business and if without the funding market there to do it which is again it's a good thing it shows less supply scarcity all those things you talked about in this interview is fed by the lack of funding. Yeah, like we've been laying out bold cases here, left, right, and center now for the space and I think it's obvious that we still have a long way to go and we've mentioned it both a couple of times now, but m maybe last minute here. What are some of the bare cases or what is the bare case for our sector? Like we always talk about the the positives and the ups and what is something that could derail our old sector here right now? >> So on on the gold specific side, I would say you know more fiscal discipline in the US. So I think the last, you know, Fed speak from Jackson Hole this past week uh was positive. Like if if the US government said we're gonna we're gonna or the Fed said we're going to fight inflation, you know, with higher rates and we want a strong US dollar and we're going to but I you we said that before. I don't see the math behind that being able to work. The US government is going to have a very hard time affording 37 38 trillion of debt times 5% uh bond yields. It just doesn't the math doesn't work from a from a financial uh payments perspective. So that's but if you ever saw a real hard strengthening of the US dollar uh if you saw a real tightening of the US spending situation you know Elon Musk came in like him or not like him he was probably the best shot the US had at getting real efficient and and getting some real savings and cost cutting in the US government. he only lasted a few months, right? So, >> I think Elon Musk is one of the smartest guys in the world and if one of the smartest guys in the world tries for three, four months and throws his hands up and says, "I I can't do this." Um, you know, it's too hard. Then I don't know there's a lot of hope for cutting US spending going forward in the future. But to me, my my risk on gold would be real like we're cutting the US spending by a trillion or two trillion dollars a year. Not 100 billion, 200 billion with much fanfare and then going back to cut taxes and increase deficit by a trillion dollars after that. So real fiscal discipline, a hard strengthening of the US dollar, which recent Fed speak would indicate the opposite. They're looking to probably light cut rates and probably realize they need inflation, you know, to to float their debt. That would be the two kind of goal specific things I'd be worried about. And then the the market specific thing would just be we've talked about needing a rollover in the tech stocks to kind of create a rotation of money from tech into mining. Well, if the tech market rolls over, the stock market's going to roll over because tech is lion's share of the stock market these days. So that any correction in the market, gold equities are equities, right? Their stocks first and their gold second. But they will have a little sell off on a on a market sell off and probably the first ones to rally like they did during COVID. So that would be a kind of a short-term risk. But longer term macro-wise, because I'm so exposed to the spectre personally, uh I'm always thinking about what could go wrong and and for now I have not seen any governments or any fiscal actions that would have kind of derailed my whole thesis at this point in time. >> Fantastic. Michael, really appreciate the conversation with you. Um, you're going to be in Europe actually here in uh, I don't know, 6 weeks or so. Tell us about that. Why are you coming out? >> Yeah, I'm going to be in Europe from October 6th to 10th. Uh, it's been a long time since I've been to Europe. I haven't been there professionally with mining companies ever actually. So, it's been my first time to interact with European investors. Uh, I love the European market. A lot of good European investors and many of the junior mining companies I've invested in long-term money. They understand uh, gold as a as a real currency, as preserver of wealth, especially in hyperinflationary environments. So, very excited to go. I'm going to be in London, uh, Paris, Zurich, Geneva, and Frankfurt for five days in a row. I'm bringing uh, six of my largest junior mining companies with me on this tour. Uh, so you get to meet six companies. I'm going to do a keynote presentation in each city, talk about my macro view, a bit of my outlook for for the markets, and as well as why I'm invested in these six companies, giving investors an inside look on how I allocate capital, how I invest money in the junior mining sector, and hopefully getting to meet a lot of great people on this five-day tour. >> Yeah. Well, you're going to meet me in Frankfurt, so check. >> Looking forward to it. Saving best for last here. Absolutely. Michael, really appreciate you coming on. Great insights. We could talk for hours about the junior mining space. There's so many nuances. We know so many of the same people. Uh so it'd be fun. I can't wait to actually may probably see you in Beaver Creek as well, but that's just going to be a zoo. Uh we'll probably be just high-fiving each other on the escalators there. But uh no, Michael, appreciate you coming on and looking forward to seeing you in Beaver Creek. And everybody else, thanks so much for tuning in to Soar Financially. As you've heard, we're early third inning at best here in the junior mining or in the mining space at all. Newmont up 91%. It's just the beginning. GDX, GDXJ in particular still have a long, long way to go. Let me know what you think. How are you positioned? Are you looking at mining stocks at all or is this just a waste of your time? Really, let us know. We do want to hear from you. Put it in the comments down below and don't forget to hit that like and subscribe button. Thank you so much for tuning in. We'll be back with lots more. Take care out there. [Music]