Gold Stocks Still Cheap. Energy Stocks are Cheaper.
Summary
Investment Strategy: Rob Mullen emphasizes a disciplined, value-driven investment approach focused on cash flow sustainability and management's willingness to share profits, particularly in the natural resources sector.
Gold Market Insights: Gold stocks are currently undervalued, trading at historically low multiples despite strong cash flows, with central banks and retail investors increasingly buying physical gold.
Energy Sector Opportunities: Mullen sees significant value in North Sea energy companies, which are trading at low multiples due to Europe's regulatory environment but offer high dividends and potential for multiple expansions.
Volatility Embrace: Mullen advocates for embracing market volatility through long volatility strategies, which can provide opportunities to buy undervalued assets during market downturns.
Uranium and Strategic Metals: While acknowledging the high valuations in the uranium sector, Mullen prefers exposure through diversified asset managers like Sprat, which offer a safer margin of safety.
Market Dynamics: The podcast discusses the potential risks and opportunities in the market, including the impact of AI on productivity, geopolitical tensions, and the role of large multi-manager funds in shaping market liquidity.
Resource Sector Outlook: Despite the current underrepresentation of resource-focused funds, Mullen anticipates a resurgence in interest as market conditions evolve, potentially leading to significant gains in resource stocks.
Transcript
Today we've got the privilege of chatting with Rob Mullen, the CIO and founder of Marathon Resource Advisors. And this is someone we've wanted to chat with for quite some time, isn't it? >> He absolutely is, mate. An intriguing character. Rob is like from San Francisco of all places. The dichotomy kind of grips us. He's in the epicenter of AI and here we are talking about beaten up cash flow natural resources stocks. >> Rob runs the soul fund at MRA. They are an asset manager purely focused on the natural resources space. So this gives us an abundance of things to talk about. He can invest anywhere around the globe in any commodity. >> Since MRA became a long short fund returns have been u bonkers mate 33% around manualized an incredible year to date 80 odd%. He sticks to his core looking for you know cheap cheaply valued equities kind of counter cyclical understanding that these are cyclical businesses um and still thinks there's a lot of value in in gold. Very attracted to energy. Totally. And tacking on to that one, mate, he writes some of the best resource investor letters out there. Just gripping kind of stuff in the way he sort of sees the market, whether that be talking about private credit, private equity, pod shops, what they've kind of done to the market and how they've impacted the market all the way through to generalist investors. Are they going to return to the market? Are they going to come to places like oil, metals, critical minerals? So, really hope you enjoy this conversation with Rob Mullen. in in an interview you did recently, you said we've done very well for our investors having a very disciplined approach buying companies the old-fashioned way. What what does that sort of mean to you and how different do you feel from the pack in in this kind of market? >> Well, it's I I have kind of an interesting seat, right? I'm a I'm a resource guy, a fundamentally valued driven investor sitting who grew up right in the middle of Silicon Valley and I'm right smack dab in the middle of some convergence of tech, AI, and crypto. So I I can't possibly be pulled by different worlds any more strongly than I am currently. I'll even take that to a bigger extreme in that um you know my family heritage and the name of the fund is from Marathon uh Marathon Texas which my mom grew up on a cattle ranch out in the middle of a very very quiet desolate part of Texas which is known as one of the most Republican most conservative uh parts of the country. Flip side of that is I now live a couple of blocks from the corner of Hate and Ashbury streets which is you know here in San Francisco which is quite frank and I think it has been measured as the single most democratic zip code in the entire United States of America. So you know I'm just I'm just sitting in the middle trying to make sure I don't offend anybody too much. But when it comes to to sort of being a value investor, what it means to me uh is the ability to get comfortable with the underlying cash flow uh dynamics of the companies that you're investing in, the sustainability of those cash flows, and importantly, the willingness of the management companies to share those with you. Um because big cash flows don't mean anything if they're just going to blow it on stupid stuff, quite honestly. Um, so what it means is how how fundamentally can I underpin or underwrite the value of my investments given the cash flow that I know is going to be coming back at me. And I think while that you know used to be a fairly popular um it may not have been everybody because there have always been growth investors and you know people who have uh you know really gone after more exciting parts of the market. Um but you go back 30 or 40 years um you know the latter part of that is when I was kind of cutting my teeth in as investor and that was kind of standard operating procedure. You were looking to try and find a dollar's worth of assets and buy them for something less than a dollar. And I think that has become in this market something that's kind of anacronistic. Uh there are there are very few people still left doing that kind of analysis because quite frankly for the most part it hasn't paid particularly well in a while. >> Yeah. Yeah. But I mean that's so fascinating and when you when you sort of talk about stocks that trade on two to three times cash flow I I don't know about other people but that gets me super excited. But before we jump into some of those kind of stocks I am very curious to to know given that kind of dichotomy of you sitting there in San Francisco what what the appeal of natural resources was in I think in the '9s when you first jumped into that corner of the market. >> Yeah. Well, look, having a having a family heritage on a working cattle ranch out in the middle of Texas where they haven't actually found any oil and gas on uh on the ranch, but they looked for it uh and they paid us some bonuses. So, that was nice. Um but there's always been a little bit of an underpinning of, you know, real working commodity resourcy kind of businesses in my family. But the you know the real driver was you know one of my one of the things that kind of personally defines my skill set is I'm a very quantitative person and by that I mean uh I've got a fluidity with numbers that enables me to build models and and and look at both absolute and relative valuations and try and discern value. Uh and it's like you know every there's a combination of investing that is both a math problem and a little bit of psychology. Uh and so if you can do the math side of it right you and can you you can learn the psychology part of it over time bringing together those two things is is very helpful. So when I was at the Franklin Templeton group I covered a bunch of different sectors. the you know the resource sector was one of them but I also covered consumer products uh and the skill set required there was figure out you know how popular Gillette's brands or Colgate Palm Olive's brands are going to be next year and what multiple the market will put on that um that's a very different skill set than you know build me a discounted cash flow model so you can buy a copper company or an oil company for something less than what the current strip pricing would tell you is the cash flows that they'll produce over the last five to seven or next five to seven years. So with that kind of skill set, I' I've never been much of a fortune teller. I'm no good at telling you what app is going to be the most successful one or whether people are going to find it really important to get a seventh way to order a hamburger, you know, via effectively a limousine to come to your house. Um that's never been my gig. Um, it's really just good going in and being able to understand companies and cash flows and hopefully have a disciplined process around that to be able to buy them when the market is giving you the largest margin of safety. >> In the in the was it the mid 90s 90s you kicked off the gold fund at Franklin Templeton. And we're going to spend a fair bit of time today talking about gold, gold miners, gold stocks, and your views on gold. But like when you first became acquainted with the gold sector, how were things different then from from where they are right now? >> Yeah, it's it's wild. So just full disclosure, I never ran the gold fund at Franklin. That was you know that was actually originally introduced in like the 50s. I think Marty Whiskerman was the original Franklin partner who brought that fund out. Um and while I definitely had a dialogue with the manager of that fund, uh it was never part of under my purview. I ran the natural resource fund there. Um, you know, that said, I came into the business when gold stocks were valued at, you know, typically at least two times, if not higher times NAV, you know, where people were willing to pay a significant premium to, you know, on to the market multiples on cash flow or earnings because they felt that gold stocks served a purpose. They protected you from what might be an adverse or inflationary outcome that look in the early 90s the 70s were still a pretty vivid memory for a lot of the portfolio managers. Now that portfolio manager generation has now more or less I I won't say they've died off but they've gone into retirement. You know they're living on their boats. They're they're hanging out elsewhere. Um and over gradually over that period of time between us getting the world getting very comfortable that we're in a low inflationary environment perpetually um and uh the leaning in on the sort of move towards decarbonization and ESG that embedded premium that gold stocks used to trade with gradually whittleled away over an extended period of time to the point where there was a point earlier this year where the gold stocks had been cheaper on relative multiples, earnings, cash flow, even though they were generating fabulous returns on equity and returns on capital. They were at the deepest discount to the broader market that we had ever seen. They were the cheapest stocks on my board with the exception of, you know, like a few coal companies and some really out of favor um you know, out of favor energy stocks. So, so I think what that that's why people got so frustrated with gold stocks over the last decade plus after they peaked in 2011 um is that it just was like relentless. You could not win. The gold price actually did okay, but this the stocks were demultipled or or depremium into oblivion. And so what's changed over the last gosh, let's call it six months is that suddenly the businesses became so good that people had figured out that they needed to pay a little bit more for them. >> Where do you think that kind of goes to? Do do you think we get back to the the two or three times cash flow days? >> Uh you mean two to three times NAV? >> Yeah. Yes. Yes. Absolutely. >> I you know I don't know. I don't know if we ever get back. I mean, it'd be really fun if we did, you know, because despite the fact that most of these stocks are up a lot, so are the NAVs, right? Um, and so they're still trading relatively cheap. I'm of a mind that if you have a real investment theme that the broader market is going to embrace, you should get expanding multiples on that. And that's what we've seen in areas like, you know, AI power generation where you look at a GE Vernova that's gone from, you know, it was spun out at 20 times earnings. is now trading at 50 times earnings because they sell the turbines that people need to build new natural gas fired plants to be able to actually build these new data centers. You know, if you look at places like the European defense stocks there, you've seen massive multiple expansion too as the reigns have been taken off of the Europeans uh in terms of their ability to budget spend or deficit spend to be able to expand to take care of their own borders. And so, you know, Leonardo has gone from five times earnings to 25 times earnings. The gold stocks are all up on as a group, you know, 100 to 150% this year, but the valuations have not expanded. Uh, and so that's an interesting thing that, you know, has me typically I'd be pretty scared with these stocks having run as hard as they are. The fact that the multiples have not expanded makes me more comfortable than I would normally be. >> I actually looked at all of the the gold gold mine evaluations. I think it was yesterday. And um so there's there's only two miners with trading at at two time about two times NAV. London Gold and uh Agneo Eagle. I was surprised to see London Gold there. But um but but like you what you're trading relative to NAV depends so much on what your assumption of gold price is. And of course um >> exactly >> these gold stocks look phenomenally cheap if you assume that today's gold price is >> the new gold price into per perpetuity. But every everyone's valuing these on a on a on a reversion to main call price assumption. >> Yeah, if you mark them if you mark the NAV to market, they're all super cheap. I I I will walk you through I won't name the name of the company, but um I will say so this has been a portfolio holding for us for a couple of years. Uh and they're in the process of building, you know, what we think is going to be a pretty good gold mine. And so when we met with them at the Colorado Springs uh World Gold forum meeting in September of 2024, you know, the market cap of the company was about $600 million bucks and it looked like they would generate about $300 million of basically free cash in the first year of production, which it is going to be 2027. Uh and so effectively trading two times cash flow. So I'm like great, okay, that looks good. Comfortable as a portfolio holding. we go back this year. So this no this uh September. So one year later the stock is up 250%. So the market cap is now 1 point or actually a little bit more. So it's $1.8 billion as the market cap, but the first year cash flow in 2027 is $900 million instead of $300 million. So it's still trading at two times cash flow. Um, and actually between then and now, you've taken out a lot of the execution risk. A lot of the big parts of the plant have been ordered. A lot of the pre-strip has been done. A lot of the potential, you know, pitfalls that you get with any sort of ancillary permitting or anything like that have been worked through. So, it's actually it's cheaper now than it up 250% plus, but it's cheaper than it was a year ago. Uh, and it has been measurably derisked. So that's the kind of thing where I have a hard time saying I've got to sell this stock because it's up. >> How much a part of the the narrative from totally out of fashion to, you know, the the the hottest things in sliced bread in the in in the scheme of this transition, do you think the retail investors coming in and and the flow starting to come in? We've started to see it happen, but we're nowhere near a sort of euphoric type place with regard to retail investors in the gold space. Yeah. Um so that was the big the puzzling factor earlier this year is that and then really over the course of the last several years is that you had this massive visible overt buying of physical gold by global central banks particularly eastern global central banks. Um and the reason that gold prices weren't going up faster is that the west was selling it to them. You know right we were we were liquidating our ETFs. we were, you know, still had some western central banks deciding to be marginal sellers. Uh, and so the that kind of helped keep keep a lid on it. That's the narrative that changed this year for physical gold, which is all of a sudden the central banks are still buying, but uh, and they have now company. It's more than just the, you know, Turkeys and Russia's and China's. You've added in things like Poland and and others that have been pretty aggressive and and and a lot of other central banks. So that's been part of it, but you've actually seen the, you know, you've seen, as you say, the retail investors have started to join. So it went from having relatively balanced buyers and sellers to now everyone kind of on the margin is buying and there are very few people who at this point are willing to sell their gold except today we note that I think the gold price was down about 90 bucks US uh in today's trading. So uh you know maybe maybe the correction that people have been waiting for for a while has has arrived. Um, but I think that's that's part of the narrative. The interesting thing to me is that gold stocks still, you know, the major gold stock ETFs in the US have still had net liquidations yearto date. Um, so that doesn't happen very often. I went back and looked at gosh, I think 15 years worth of top performing ETFs and how often they had outflows and it's about 3% of the time. Um, and so it's a pretty unique beast to have the top performing ETFs uh having net outflows over the course of the year. The last I checked, the GDX in the US has still had net outflows of close to $3 billion this year. It's reversed a little bit in the last few weeks. So we've gotten six 700 million worth of inflows. But, you know, to have a a a vehicle that has performed that well and to have had net public liquidation of it is really kind of telling you something that I think it's not early early, but it's not late by any stretch of the imagination. >> When when do things look like they're late? >> You know, that's that's when you're starting to see I I'm looking for two different things. One of which is where you're starting to see, you know, new share issuance by the GDX and the GDXJ start to go up marketly. So you don't just see it going up because of performance. You see the NAVs U or not the NAVs but the AUM going up dramatically because you're getting you know billions and billions of dollars of inflows. Not seeing that yet. Uh you know when you start to see we've seen a lot of smaller companies do equity issuances. when you start to see the big guys do equity issuances because they're starting to buy other things and they don't really want to you know issue their uh you know do a lot of debt or um things like that then then you're starting to get a little bit later in the game for sure um you know as in terms of yard sticks for me I still look at you know where is the gold price and the US held gold relative and how much does that cover of our foreign held treasuries. Um, and so right now the historical range on that has been anywhere from like 40% to 5%. Uh, of basically us having enough gold to cover the entirety of the treasuries that we have issued to foreign entities. Um, and so right now that metric is, you know, call it the the domestic stockpile of US gold is just over a trillion dollars. Um, we've got close to $10 trillion worth of Treasury securities issued to foreigners. So, it's a little I think it's about 11% right now. So, you know, that would tell you that we're still relatively early in this process. But what I know for sure is we're never, and this is what I tell investors with us, we're never going to get the really easy, steady, up into the right kind of bull markets that technology investors or healthcare investors get for these long extended periods of time. We have signed up for a totally different rodeo in that we're going to have these sharp, brutal corrections that are going to shake your confidence to the very core. It's just what this sector does. It what's it's what makes it so hard to invest in. Um and that's above and beyond the fact that environments where resource stocks are doing really well are inherently really volatile periods because inflation is rising, inflation uh concerns are rising. That creates stress between equity and bond markets. And so it's, you know, it's almost like we are self-defeating because the goodness that comes with this broadening inflationary outlet comes with this massive volatility that you suddenly have to manage through. >> That's what also makes the uh the resource sector so so fascinating to to follow that that dynamic of of global in nature and and very volatile. I I I'm curious to hear where you're seeing just maybe rounding out on gold there the most value because you have a global mandate and I think you said a few months back that overall you were um relatively light on in in North America. I think you said 25% of the portfolio was was US Canada. I'm not sure how much that's changed but where where are the pockets of value when it comes to gold? >> Yeah. So gold I think in some ways you have to look at almost a little bit of ancilliary plays. So, we came into this year very heavily positioned in precious metals and we're still pretty heavy, but we've been trimming a little bit off the top. You know, where we're still comfortable is, you know, at the valuations haven't expanded dramatically on uh sort of the resource asset managers. So, you know, one of our largest positions is a company that has both uh commodity commodity equity ETFs in gold, silver, platinum, uranium, etc. So, yeah. >> Yeah. So, that's an area where look, your your downside risk is a little bit truncated because they're not going to get taken out by a single coup in one country or a tailings dam fall or a permit that doesn't go through. Um, you know, if the sector does well, they're going to do well. and it's typically something that will carry past the end of the cycle. So that's an area of exposure to us. I think there's still reasonably good value in some of these developers. So companies that are, you know, maybe 12 to 18 months out from getting production online because there's still you have to do your due diligence on execution risk, but those are places where it's you can find I think some reasonable value. Um I also think that some of the things around uh you know the blocking and tackling you know I came away from shoot I met with like 40 companies over the course of uh you know myself and my colleagues u met with about 40 companies in 10 days between Beaver Creek and Colorado Springs. Um, and what we walked away with is let's find ways to buy companies that benefit from people actually having to drill a lot more projects. So, you know, drilling rig contractors and things like that because, you know, when you've got juniors raising a lot of money and having to keep up some news flow for their new investors to make sure that not only can they make the happy, make them happy, the people who bought the last deal, but make sure you can get them excited to buy the next deal, you know, you got to run the truth machine and which is the drilling rig. So, I think services around that are kind of an interesting way to position yourselves in in in the market now that we're moving into a sweet spot where enthusiasm is translating to having to put capital in the ground. >> Yeah. Yeah. Yeah. The the picks and shovels play always interesting. >> Picks and shovels approach. Picks and shovels in the resources space. Is that like Sanvic ground support? >> It is. We're talking about businesses like Sanvic ground support, mate. because well there's always a booming demand for the world's best ground support which we we know is there's infinite demand for that kind of product but when times are when times are absolutely huming in the resources space infinite becomes even more infinite. Do do you know why I'm I'm so attracted to to the old DSI to the Sanvic ground support business as well? Because they are the premier name in the sector, mate. The quality rises to the top and these guys have mastered it in Australia. What do you what do you think Rob would think of someone who's a self-described uh quantitative guy? What do you think he would think of my my statement that something infinite can become even more infinite? Do do you think he'd approve, can I get a job at marathon after this? Doesn't matter because Sanvic ground support. They might give me a job because it's the best ground support. Maybe they need someone to sell ground. >> It'd be a privilege to work under Derek Herd. Go Derek. Go the Sanvic ground support team. And if you're a minor out there, get your order in today. >> Get some ground support and improve my math. But um yeah, the cyclical nature of of of them is like fascinating as well. I do think of this like phenomenon when it comes to like um yeah cyclical businesses where at the at the peaks of cycles often the multiples look the cheapest and it's at the troughs where multiples look the most expensive just by by virtue of the the relative valuation and um the compression of earnings around there. But I was struck speaking of like you know energy stocks when um when you've actually got what is what feels like a relative trough and yet multiples are tremendously low. This is strange right? >> Totally. Um and I would say you know what I try and do with the strategy that we manage which is you know try and have a kind of core book of these high cash generating significant capital returning kind of companies is in the best of all worlds what you do is utilize downturns to acquire positive carry convexity. Uh, and what I mean by those two terms, the positive carry comes from the dividend yield that comes in with it. So you get, you know, five, seven, 10, 12% dividend yields. And that's your positive carry. That's what you're paid to wait. The convexity comes from low expectations on future earnings or future commodity prices and very compressed multiples. Um, so when you're paid well to be patient, it's almost like you're buying a long duration option that pays you to own it. Um, and so that that to me, having been through a few or more than a few of these cycles in resources, that's the way you work your way through the choppy times is making sure you've got a real core positioning in that kind of stuff. some of these these energy names to to tease out what you're saying there like 10 plus% dividends and they're you know they're they're the unloved types of ones. They're the ones listed in in perhaps London or or or Norway or or or these types of things. But when when you when you put it all kind of together, how do you see that playing out from where we are today? How do you see the cycle playing out? So what I will say is that the way we are express the cheapest way that we're finding to express a positive uh energy bet is just as you said uh a lot of the North Sea listed ENTP companies. So whether that's Norway or the UK, um it is I think you know in my career it's unusual for me to be able to find these types of quality companies uh at multiples like this and we understand why that is right is that what over the last what's happened in the last decade in Europe has been the most um god tear off your nose to spite your face regulator regy and tax regime in the history of mankind. I think it's it's possibly the biggest own goal in the history of global capitalism in that they shut down a bunch of perfectly functioning nuclear plants as well as significantly uh you know discouraged domestic production of hydrocarbons and left themselves wholly vulnerable to some combination of Russian pipeline gas and global LNG. And so, you know, effectively what's that's happened is, you know, German industrial production didn't fall for 40 years. It's fallen for five straight years now. Um, and it didn't recover at all after CO and kept, in fact, it's kept going down because there's no stability or no confidence in energy policy. So, you know, with with high taxes and high regulation, they've done everything they can to discourage local production. Question is, is that changing? And what you when you see who's starting to lead in the polls, if you're in France or if you're in the UK or if you're in um you know in Germany, you've got moderate to slightly right leaning governments who I think have the potential to have a significantly more pragmatic energy policy. Um, and if that's the if that's the case, if you can look at this like a rational human being, which may be a stretch for European politicians, but if you can if you can be rational for just a moment and say, okay, uh, it's a cheaper domestic to produce it domestically, it helps domestic employment, it helps domestic tax receipts, and oh, by the way, even if you're producing natural gas, in the North Sea and delivering it, you know, onshore via pipeline. It is wildly less uh carbon intensive, so much greener than shipping it in from Trinidad and Tobago, right? So, you know, it's it's the case for it is overwhelming. That said, it's not a sure bet, but that's why the stocks are trading at two times cash flow. So my thought on these is you've got really good companies um in terms of people companies who have taken advantage of a cycle where all of the BPs and shells and totals have been encouraged to sell their boring stuff to invest money in renewables which is crappy returns but they've sold all these boring assets that are on the very very cheap and these five or six companies in the North Sea have gobbled all these up at super bargain bargain prices and they're just sitting there waiting for things potentially to get just a little bit better. And so, you know, I don't think these are going to be five to six times cash flow businesses, but if they're currently trading at one and a half times or two times cash flow and they go to three times cash flow and they're paying you double digit dividends annually along the way, that feels like a pretty good ride to me. And so that's that's the core of our energy exposure uh right now is in kind of three different companies who operate in that realm. >> And and how about if you contrast that with the the energy companies in in the states because you've spoken about the the sharp drop off in in shale perhaps perhaps you've got a view that that's even sharper than other people might anticipate. But what what do you sort of make of the the multiples and the valuations that uh the companies, you know, similar type companies trade at in the states? >> You know, it takes someone who's actually taken the time to understand what a decline curve looks like. And so, uh, and what that speaks to is longer term capital intensivity. You know, if you have a company that's predominantly shale oriented, you're going to be losing, you know, 35ish if it's a relatively mature base. It's something that's growing, it's more like 50% a year in annual decline rate. So, you are struggling to produce if you're producing 100,000 barrels a day, you know, you got to find, you know, 40 to 50,000 barrels a day of new barrels the next year to make sure you just stay flat. when you're talking about these North Sea assets where you've got mature fields where you're not talking about the same kind of massive upfront frack and rapid decline curves, you know, if you're a 100,000 barrel a day producer, you only have to find 20,000 barrels a day, 25,000 barrels a day, maybe 15,000 barrels a day. And therefore, all of the cash flow that you're generating off of that 100,000 barrels a day, you you're free to do other stuff with. You're free to buy back stock. You're free to pay down debt. You're free to pay dividends. You're free to make accretive acquisitions with cash, which means they are truly accretive. So that's the opportunity set that I see. And so that's uniquely to I think that's more North Sea and elsewhere most of the sort of headline names uh in the Perian, you know, are of the first variety which is rapid decline curves. um where you don't have a lot of visibility of what that production curve is going to look like in three to five years. All you know is you're going to have to spend a ton of money between now and then just to stay flat. And so I I don't find a lot of value in USbased producers. I've got a few and there's some good royalty companies uh in the US and Canada that I think are are worthwhile vehicles. But that said, you know, I just I'll take the I'll take the European stuff just on a multiple uh reserve life uh positive potential catalyst that's outside of just oil prices and gas prices going up. Um you know, that to me is a is a much easier bet and I'm being paid a lot better to take that bet as well. un under underpinning maybe maybe some of the um yeah potential upside as well is like have you had a look at the chart it's just the gold price to to oil price ratios and just like how how how extreme things are on on the high end from just a historical like basis over the last >> uh yeah like 50 60 70 years it's kind of remarkable with the exception of co >> yeah it is um I think I understand it and I've had people talking to me this talking to me about this for a year or a year and a half and like does that make you want to go short gold and long oil my answer is no because there's there there's fundamental drivers behind it you know look I you know I was a presenter at the LBMA forum last November so just under a year ago in Miami and I had a chance to sit down you know with some fellow presenters a couple of whom were central banks and you know I said look just between you know us two guys, you know, if we see a riskoff situation where, you know, treasuries are well bid and gold goes down in theory, what do you think the global central bank community does? Uh, and they said they would take that as an opportunity to sell more treasuries and to buy more gold. So, I think we're in a regime that's very different from what defined the 2020s or sorry, the 2000s to 2020. That 20-year period was totally unique. Very low inflation, very low inflation expectations, and that's what gave bonds and stocks their anti-correlated um you know, feature. Um we're out of that realm right now. So that's what, you know, if inflation's above 2 and a half or 3%, bonds and stocks aren't inversely correlated. In fact, they're more likely to be positively correlated. So you need something else in there that acts differently. And gold is serving that purpose, you know. But flip that to oil. I actually I I think the sentiment in oil is awful, which just makes me kind of attracted to it. I mean, I like I like I'm I'm a you know, I'm a I'm a I'm a metaphysical dumper dumpster diver by, you know, by training. So, that to me is where there's really interesting opportunity. Now, if you look over a much longer time frame, look at 120 years worth of history. There's a there's a great uh guy uh Rob Connor who writes the crude chronic chronicles. if you're not a subscriber to that Substack or following on on X, it's worth doing. Um, but the lesson of the last 120 years, if you look at whether it's gold, base metals, uh, energy, uh, agricultural commodities, they tend to travel together over time. And so from that perspective, I think gold is telling us something very interesting right now about where the rest of the commodity complex can go over the next three, five, 10 years. And I think if you if you listen closely, it's telling you higher. So you just need to think about that and maybe be a little bit patient. But this is the time to pick up that really inexpensive convexity in the energy patch. So to to tease that out even even further, you you've spoken and I think you wrote in your quarterly Rob about embracing volatility which is a a fascinating concept and it um yeah for some of the listeners that might come from a more mining oriented background it's a concept that might need a bit of breaking down but essentially we're in a world where where the pod shops and all these other you know PE private credit are trying to eradicate volatility from their portfolios or make it sort of seemingly So from from the outside and again you you seem to be pretty attracted to to doing the opposite. So I'd love to just hear your thoughts on how you embrace volatility. >> Yeah. So understanding that we're in a volatile sector, you know, it's the reason why we feel so strongly about being long short and hopefully being able to offset some of your sector specific risk that way. But there are some risks that are just a little hard to offset and those are broader systematic risks. And so those are areas where you know I went on a on a I guess you could call it a volatility journey back in the late you know for kind of 201617 to 2019 really understanding how bringing in certain instruments what I think the common terms would be e either long volatility or tail hedge type of characteristics into a portfolio that you know and resources that's inherently volatile itself often for very unusual ual or or usual reasons that having that long volatility bias gives you the ability to do some things that I think are very important. Um this sector in particular makes you feel like you need to sell things at the bottom because it hurts so badly, right? Um, and it also makes you feel like you have to buy a ton more at the top because man, it feels really good. There are ways that you can structure it from a security specific standpoint to be able uh to say look I'm going to spend you know 50 basis points 100 basis points 150 basis points of the fund over a course of 3 to 6 months and just say you know what there are some ways if I look across what I consider the kind of volatility um surface of various instruments where can I where can I exercise this cheap convexity in a way that it might get have make me able to get exposure in some instruments that give me the ability to not only hold on to all of my stocks if the market drops significantly um but gives me actual dry powder to buy more because that is you know from you know this is I don't even know how you would count the cycles that I have been through since I started managing resource money in kind of 1995 five. But the single biggest differentiator in long-term performance is being able to hold on to the bottom, being able to hold on at the bottom. Um, when everybody else is, you know, basically kind of dry heaving their their portfolios and in the best possible scenario, you have the ability to buy there. And that's what being long volatility enables you to do if you do it right. And look, I haven't gotten it right every time, but we get it right more often than we get it wrong. Um and but the ability to really compound returns with that sort of opportunistic, you know, buying and then harvesting uh capital from volatility is just it's it's it's it's a gamecher in terms of keeping you in the game when you need to be in the game and uh and enabling you to to to buy more. When you know, in my case, the 10 or 15% dividend yields go to 20 or 25. That's when you really want to be kind of backing up the truck. with with 80% returns year to date and 33.2% returns annualized since 2020. I think you're doing I think you're doing it right more often than not. >> I can I can neither confirm or deny those two. >> How do how do you think about the the kind of unpopularity of of what you kind of do? I mean, I know we started the conversation there, but even here in Australia, which is a resource kind of focused economy. We've seen a decline in the number of fund managers focusing on the space. I I I don't have as great an insight to what that's like in in the states, but are these sort of conferences kind of poorly attended to or are things perhaps changing in recent years with generalists starting to come and and look at the space? We're starting to see the very early stages of that in gold. I asked the, you know, the sponsors of the last two events, you know, both Beaver Creek and um Colorado Springs marginally more a little more people, but not what you would expect with the groups having done well. And energy conferences are have now been very lightly attended. You know, one of the things that I typically do is, you know, as you say, fewer number of fund managers than there used to be. Um, and I've worked with or shared meetings with the vast majority of them. You know, I spent some time underneath Toqueville Asset Management. So, I got to know uh, you know, uh, John Hathaway who's, you know, one of the great grand deans and one of the real true gentlemen in this business. Um, and you talk to someone like that or some of the guys who have run, you know, really good mutual funds in the sector for 10 or 15 years or some of my former colleagues who have run some of the closed end funds. No one's getting inflows, you know, and that's this is for gold managers. Um, resource managers as a whole are getting outflows. So, it's like it's it's kind of like we've been deplatformed. And so for us in the US where all the capital is gravitated to is the pod shops you know is to the millenniums and balasnes and 72s and those sorts of platforms where you know they provide an infrastructure for people to run a very specific kind of resource portfolios where they need to be very big liquid stocks. uh they need to be very balanced books and they're trying to ek out, you know, mids singledigit returns that they can then lever up five, six, seven times uh and generate a return stream that way. That's a very different beast. And I think that goes back to what you're talking about in terms of embracing volatility. Those managers, even though they run hu they run huge amounts of money um on a levered basis, but they can't own these little eclectic, you know, and by little I mean, you know, a billion, two billion, three billion dollar market cap companies. If they don't trade at least 15 or 20 million bucks a day, they're not going to own them. So those are outside the realm of the majority of resour allocated resource investment dollars going on today. Um I also think a lot of the generalists have just disbanded whatever sort of segments of their resource teams that they had. I mean, when I was coming up in this business in the, you know, mid to late 90s or the early 2000s, you know, you would the Black Rocks and the Fidelities and stuff, they'd have fleets of analysts coming to, you know, every one of the conferences, you just don't see them anymore. And even the good sort of single strategy hedge funds you know now 90% of their teams are effectively you know tech AI you know maybe some healthcare maybe some financials but given the shrinkage in resources as a percent of total market cap and the relative diminishment of liquidity there uh you know they're just they're not there. The good news is that if we come through a period where the group is starts to get back in favor again and the market caps grow and you get new issuance and all of a sudden you know all of a sudden they're going to be interested but it probably is at levels 50 to 100% higher than where we are today. >> Where do you think the world kind of goes with as you mentioned the the millenniums the 72s the the citadels of of the world? I mean, these strategies have grown enormously and they're kind of swallowing the the market in a way, but you you had a great quote at one point where, you know, you sort of said some not that these funds can't work in in the long term, but the strategy of eradicating volatility as you sort of said, you know, they they haven't faced that massive GFC type moment or anything in a in a substantial way. And like the the ones that did they were much smaller back then and they almost got wiped out. Some of them did kind of get wiped out. So how do you think about the the size of those funds in the market in 10 years time in 15 years time? >> Yeah, that's a super tough call because look the return streams that they have generated for their investors even though they charge enormous fees between A and B the return streams to investors have been great. assuming the investors want that sort of tea bill on steroids. You know, give me my one one and a half% a month and with very limited draw downs and they're perfectly happy. Um, you can do that as a, you know, couple hundred billion dollar industry. I don't it's hard to do it's hard to see the multi-managers as like a 500 billion or a trillion dollar industry. Then if you're talking the leverage on top of it, it's like you just I don't think the math works in terms of the underlying liquidity in the markets where they're really generating most of their returns. So I don't think they can grow as much as they have. It doesn't mean that they're they're doomed or that they won't continue to generate, you know, very attractive returns for a certain kind of investor set. Um, but you bring up a good question, which is, uh, you know, it's the taller the the taller the pyramid get or the taller the, you know, sort of the tree gets, the bigger the noise it makes when you knock it over, right? And the more damage it causes. And so I think we're in a spot where if you see some of the wonky stuff going on in private credit, which to me has kind of been the duct tape and bailing wire that's held together private equity, venture capital, commercial real estate, and you know, even some other facets of the market. You know, you start to see that liquidity drain coming out at the same time that you see broader liquidity um start to dry up a little bit as well. and you know combine on that uh you know the the fact that passive flows I'm not sure how much that keeps going if you keep firing 250 you know US passive flows that are highly dependent on 401k contributions if you start to fire a bunch of you know 250 or $300,000 a year programmers you know firing one person like that is like firing five people who make $50,000 a year and the impact on 401k flows is not insignificant so there's some dynamics in place where we may get that kind of riskoff sort of environment. Um and you know I'm just happy that volatility has been on sale and that the VIX has come down considerably both in equity uh and in rates and also in um you know in broader uh you know kind of uh in currency ball um so that to me is a a healthy allocation for us. Um, and look, I don't wish ill on anybody. Uh, but, uh, there's there's a part of me from a purely selfish standpoint that would love to see a really inconvenient fourth quarter of 2025, you know, shock to the system that takes the market down another, you know, takes the market down 5, 10, 15%. Because the other part of this is that as much as I like to be a buyer of volatility when it's cheap, there are a number of entities out there that have been pretty rabid sellers of volatility into every decline. And when you're a seller of volatility, you're kind of picking up nickels in front of steamrollers and it's worked. Um, but that doesn't work forever. And if you know, there's a great old New Yorker cartoon. And there's a guy, you know, it looks like a guy in a tattered suit sitting on a street corner and he's holding up a sign with a little cup looking for people to, you know, donate to him. And he said, "I bought the dip and then there was another dip." So that's the kind of thing that if you're a volatility seller, and that's what they've been Pavlovianly trained to do, is sell into every selloff. They did it during COVID. They did it during the taper tantrum. They did it during, you know, Volmageddon back a couple years ago. you get that second leg down and all of a sudden someone who's selling, you know, 25 or 30 basis points of volatility in their portfolio and thinking, "Hey, this is a great way to pick up a little bit of yield and that triples or quadruples on them and they're trying to figure out how to tell their investment committee they lost 150 basis points in three days in a market where all the rest of their stuff is melting down." That's a very different argument. Um, and I think you could see the pucker factor come pretty rapidly if we get that dip, then a second dip. And so, um, you know, there's there's I think there's going to be value to long volatility here. Whether it happens this year or not, I have no idea. But um at some point over the next 12 to 18 months, I think a market as richly valued as it is right now and as I think fragile from an incremental flow standpoint and built on a you know layer after layer of kind of opaqueness in these private credit instruments where we just don't have a lot of visibility and we're seeing that now with a couple things that happened in the US with first brands and a few others where hey you know we said there was collateral here But actually, sorry, there's not. And so that that calls into question the entire underwriting standard of the whole industry. And I don't think the whole industry is a fraud. But I do think there had been some bad credits underwritten. And the question is how much more of those, you know, dead fish are going to float to the surface here over the next, you know, couple three months. you you've got great insight which I think might be a bit um you know uh minimized by some people here when you talk about like investment committees and how these bigger investing operations around the world uh manage themselves and the time it takes to to to kind of get things done when when you talk about that kind of bearish sense of the market I think a lot of us here are sitting pretty confident because resources have started to work for a little while now but I'm I'm really curious to hear from you Rob what what is the world in which you know things don't quite go well for all of us in in this end of the market like what's the the bare bare case perhaps in the in the medium term for for all the names we're looking at so I think what's driving the you know broader reach towards tangible assets is the realization that you know kind of excessively spending governments and government budget deficits and having to fund these things um is having a really adverse impact on the credit side of the global marketplace. And so, you know, what could potentially improve that? Okay, look, if AI is wildly successful in increasing productivity um to the point where companies get way more profitable and taxes increase and so you start to get something closer to, you know, kind of balanced budgets or deficits at least go down. um that drives an excitement that might not be great for 50 or 60% of the companies in the S&P 500, but it doesn't matter because all the market caps in the top, you know, 25 or 30 names anyway. So that in theory, you know, could drive a reversal of what we've seen this year, which is a little bit of a growth to value rotation, and that's what and a US to global rotation. And those two things typically happen at the same time. Um that feels really good to us. You know, could that reverse? Absolutely. You know, you know, given if if if you've got great news on budget deficits, if you've got a calming down of geopolitical tensions, if you all of a sudden have the US, China, and Russia sit down and say, "Kumbaya, we're, you know, we're all buddies again, and we don't have to worry about, you know, reestablishing supply chains all over the world. So those incremental costs are going to go away and the tariffs are going to go away and yeah, you know, that's I I think that's a that's a not it's not a zero probability. I it's a pretty low probability, but I don't think it's zero. That would be the environment where I think you could sell see a sell-off in everything that we do. flip side of that or not the flip side, the other thing that you have to kind of worry about is you know what if we have this massive structural riskoff kind of move in which case most of our stuff's going to go down too. Um I think in particular to gold I think it will go down less and it will recover the fastest. You know, we've done a lot of work. The last five major corrections of the US 6040 portfolio, you know, gold on average has had half the draw down and has recovered about 70% faster. You know, you could look at that very linear linearly around the tariff tantrum. You know, gold fell roughly, you know, I think onetenth as much as the broader market and had recovered its old high in two days after the bottom was met. And this is bull, not the equities. >> So that's bullion. Um and and so and and but the equities quite frankly weren't super far behind. They they kind of followed and they were back to highs um you know within you know probably less than a month. It took almost three months for the broader S&P to get back to flat. But if you look at that analysis across the last five major you know draw downs for the 6040 portfolio that's you know that consistently gold has you know we know the playbook is if markets are rough the central banks will print eventually and you know and when they do gold's going to be the primary beneficiary. It's sitting closest to the door. um when the you know when the when the when the appetizers start getting served out of the kitchen, you know, gold is the one right next to that door and they start gobbling it up first. We I mean we haven't even asked you yet. You you talk about the the the taper tantrum, the impact of tariffs and and what the Fed might do. Something the the US government has been doing is is writing checks to resource companies, MP materials, US antimony corp and these sorts of things. How are you kind of digesting that and what are you making of some of the valuations? I mean, some of the stuff we kind of see here for for Mountain Pass, Neurology plays and the like are absolutely astounding. They're just gobsmacking for companies that have nothing but moose pasture. So, how do you digest all of that? >> So, the lesson from all of this is anything that sits in this kind of realm, you just can't be short. And so I this is speaking as someone I was short MP materials into the because look the the business is their their you know their processing business mag it's it's it's not a good business um and never has been and without government support it never would be. So uh it it tells you you can't be short. It tells you that if you're going to play in that realm at least try and find the quasi real businesses. The tough thing about this is and this is coming both from industry and from people that I know who are kind of close to you know various government agencies and the contacts that they have there is that it's not the best companies that are getting the deals uh right that are getting the support. um it tends to be a little bit more you know who's you know who's the the most politically connected who has been the most effective lobbyer of the current administration and so look I wish the money was being spent better u but that said it does mark a quantum shift in the way that resources are viewed as a strategic imperative for governments um and I think inherently that is a good thing um because if we continued to go down the path that we were going down um you know we didn't have the ability to have a functioning military for longer than five or 6 weeks if the Chinese decided to cut off the you know various you know whether it be Germanmanium or rare earths or all the sorts of things that they both produce and refine um you know we had backed ourselves unknowingly into a wildly indefensible and vulnerable corner and so now we're starting to get out of it and we realize we have to do so with some sense of urgency So, look, I get it. If I was in their seat, I'd be spraying the money hose a little bit differently. Um, but that doesn't change the fact that the money hose is in their hands. Uh, and so, you know, kind of put yourself in the way. We don't do a lot of that stuff because none of it is high free cash flowing and very little of it is in capital return mode. That said, you know, we're we've got a little basket of kind of critical metals and strategic metals where, you know, real underlying assets and businesses that yes, we're paying a lot more than we would normally like for. Um, but that is the nature of the game today is that, you know, the the we're not going to get these things at, you know, four times NAV anymore. >> I I can't I can't Yeah. let you go without without just sharing your thoughts on on uranium as well. Rob, I um I understand kazata problems your preferred way to to to be long uranium, but someone that's yeah like clearly follow super closely energy markets the uh the the EMP world like how do you think of the the uranium valuations and space right now? So the way I typically quantify this is I I rank my zealots on a scale of 1 to 10 in the resource spectrum in the resource spectrum. So uh so like so gold zealots I think kind of weigh in at about a six. >> Yeah. Yeah. Yeah. >> Um silver zealots are probably like an eight and a half or nine. Oh n >> and the uranium Yeah. And they're and the uranium guys are like a 12. They are off they're off. If you've ever seen Spinal Tap, it's like it goes to 11. So that's that that's that's the uranium bulls. And unfortunately, valuations have followed. So it's super hard for a guy who pays attention to NAVs and free cash flow yields and that sort of thing. So you know, I'm not I've got a couple of small positions in the space where I think we've got some assets that offer wildly higher convexity. So like you know a 1 or 2% position that if we're really right can act like a four or 5% position. Um but it's hard for me to own. Our exposure there is actually via the same you know the our biggest position in gold which is is spat. And when you've got an asset manager that's now a third of their book is uranium whether it's flute through the physical uranium trusts or um whether it's the actively managed uh spat ETFs or or the passively managed ones. you know, that's that's a 10 plus billion dollar asset manager. So, I think if that part of SPAT traded separately, I would love to see the multiple that the uranium, you know, Yahoos would put on it. So, I mean, I'm sure I'm sure it'd be trading for probably double what the entirety of Sprat trades at today. Um, so maybe maybe they'll get the notice and and and buy a little bit of that. So, I I love the theme. It makes all the sense in the world. If you really care about carbon emissions, you've got to care about uranium. I love I love me some yellow cake. Uh it's just hard for me to express from a from an equity standpoint and really feel like I'm giving my investors a margin of safety. >> Maybe just as a thought exercise, but do you see a similar type US government handout if you like to a uranium project or uranium company within the states like a mountain pass type deal? Well, if you look at a lot of the US uranium stocks, they seem to be already discounting something like that. U you know, some of them have got, you know, as as as they say out on the ranch in in West Texas, you know, they've already gotten their giddy up. Um and that's, you know, so I I think that would not be a surprise. Would all the stocks go up on it again? Yes, they I'm sure they would. Um but you know with stuff trading at you know now kind of you know two and a half to four times NAV on current spot prices you really got to believe in kind of $150 US uranium um to make a lot of this stuff work and yeah we'll I I have no doubt that we'll get there um you know over the course of the next three to five years. I just I'm reluctant to pay for it today. >> Absolutely. Rob, I could um I could chat with you for for hours and just and just sort of listen and learn from from your perspectives and your experience and how you think about the markets. So, thanks a lot for coming and and joining us on the show today. >> Oh, god, this was a real treat. Um, look, I've been admirer of your work and you've had some some people on, you know, incredibly great people in your recent shows in particular that I've really learned a lot from. So to be now amongst the, you know, amongst the people who you've had a chance to to speak with, I'm uh I'm honored. And at whatever point you feel like you want to hear a little bit more from me, just let me know and I'd be happy to come back on. >> Very very intrigued to to eventually learn what stock you you're going to be pitching at uh the heart and mind conference uh in November in Sydney. >> November 14th in Sydney. >> We'll be watching. Awesome. Thanks, Rob. Here we go, mate. Rob Mullen, an abundance of knowledge. I am very stoked we finally got him to share his thoughts on money of mine and all that's made possible by our fantastic supporters at Sanvic Ground Support Focus the platform by Market Tech and IMAK conference coming up very soon. Get your tickets. >> We'll be there. >> Investors go free. Hudoo >> Hudoo. Now remember, I'm an idiot. JD is an idiot. If you thought any of this was anything other than entertainment, you're an idiot and you need to read our disclaimer.
Gold Stocks Still Cheap. Energy Stocks are Cheaper.
Summary
Transcript
Today we've got the privilege of chatting with Rob Mullen, the CIO and founder of Marathon Resource Advisors. And this is someone we've wanted to chat with for quite some time, isn't it? >> He absolutely is, mate. An intriguing character. Rob is like from San Francisco of all places. The dichotomy kind of grips us. He's in the epicenter of AI and here we are talking about beaten up cash flow natural resources stocks. >> Rob runs the soul fund at MRA. They are an asset manager purely focused on the natural resources space. So this gives us an abundance of things to talk about. He can invest anywhere around the globe in any commodity. >> Since MRA became a long short fund returns have been u bonkers mate 33% around manualized an incredible year to date 80 odd%. He sticks to his core looking for you know cheap cheaply valued equities kind of counter cyclical understanding that these are cyclical businesses um and still thinks there's a lot of value in in gold. Very attracted to energy. Totally. And tacking on to that one, mate, he writes some of the best resource investor letters out there. Just gripping kind of stuff in the way he sort of sees the market, whether that be talking about private credit, private equity, pod shops, what they've kind of done to the market and how they've impacted the market all the way through to generalist investors. Are they going to return to the market? Are they going to come to places like oil, metals, critical minerals? So, really hope you enjoy this conversation with Rob Mullen. in in an interview you did recently, you said we've done very well for our investors having a very disciplined approach buying companies the old-fashioned way. What what does that sort of mean to you and how different do you feel from the pack in in this kind of market? >> Well, it's I I have kind of an interesting seat, right? I'm a I'm a resource guy, a fundamentally valued driven investor sitting who grew up right in the middle of Silicon Valley and I'm right smack dab in the middle of some convergence of tech, AI, and crypto. So I I can't possibly be pulled by different worlds any more strongly than I am currently. I'll even take that to a bigger extreme in that um you know my family heritage and the name of the fund is from Marathon uh Marathon Texas which my mom grew up on a cattle ranch out in the middle of a very very quiet desolate part of Texas which is known as one of the most Republican most conservative uh parts of the country. Flip side of that is I now live a couple of blocks from the corner of Hate and Ashbury streets which is you know here in San Francisco which is quite frank and I think it has been measured as the single most democratic zip code in the entire United States of America. So you know I'm just I'm just sitting in the middle trying to make sure I don't offend anybody too much. But when it comes to to sort of being a value investor, what it means to me uh is the ability to get comfortable with the underlying cash flow uh dynamics of the companies that you're investing in, the sustainability of those cash flows, and importantly, the willingness of the management companies to share those with you. Um because big cash flows don't mean anything if they're just going to blow it on stupid stuff, quite honestly. Um, so what it means is how how fundamentally can I underpin or underwrite the value of my investments given the cash flow that I know is going to be coming back at me. And I think while that you know used to be a fairly popular um it may not have been everybody because there have always been growth investors and you know people who have uh you know really gone after more exciting parts of the market. Um but you go back 30 or 40 years um you know the latter part of that is when I was kind of cutting my teeth in as investor and that was kind of standard operating procedure. You were looking to try and find a dollar's worth of assets and buy them for something less than a dollar. And I think that has become in this market something that's kind of anacronistic. Uh there are there are very few people still left doing that kind of analysis because quite frankly for the most part it hasn't paid particularly well in a while. >> Yeah. Yeah. But I mean that's so fascinating and when you when you sort of talk about stocks that trade on two to three times cash flow I I don't know about other people but that gets me super excited. But before we jump into some of those kind of stocks I am very curious to to know given that kind of dichotomy of you sitting there in San Francisco what what the appeal of natural resources was in I think in the '9s when you first jumped into that corner of the market. >> Yeah. Well, look, having a having a family heritage on a working cattle ranch out in the middle of Texas where they haven't actually found any oil and gas on uh on the ranch, but they looked for it uh and they paid us some bonuses. So, that was nice. Um but there's always been a little bit of an underpinning of, you know, real working commodity resourcy kind of businesses in my family. But the you know the real driver was you know one of my one of the things that kind of personally defines my skill set is I'm a very quantitative person and by that I mean uh I've got a fluidity with numbers that enables me to build models and and and look at both absolute and relative valuations and try and discern value. Uh and it's like you know every there's a combination of investing that is both a math problem and a little bit of psychology. Uh and so if you can do the math side of it right you and can you you can learn the psychology part of it over time bringing together those two things is is very helpful. So when I was at the Franklin Templeton group I covered a bunch of different sectors. the you know the resource sector was one of them but I also covered consumer products uh and the skill set required there was figure out you know how popular Gillette's brands or Colgate Palm Olive's brands are going to be next year and what multiple the market will put on that um that's a very different skill set than you know build me a discounted cash flow model so you can buy a copper company or an oil company for something less than what the current strip pricing would tell you is the cash flows that they'll produce over the last five to seven or next five to seven years. So with that kind of skill set, I' I've never been much of a fortune teller. I'm no good at telling you what app is going to be the most successful one or whether people are going to find it really important to get a seventh way to order a hamburger, you know, via effectively a limousine to come to your house. Um that's never been my gig. Um, it's really just good going in and being able to understand companies and cash flows and hopefully have a disciplined process around that to be able to buy them when the market is giving you the largest margin of safety. >> In the in the was it the mid 90s 90s you kicked off the gold fund at Franklin Templeton. And we're going to spend a fair bit of time today talking about gold, gold miners, gold stocks, and your views on gold. But like when you first became acquainted with the gold sector, how were things different then from from where they are right now? >> Yeah, it's it's wild. So just full disclosure, I never ran the gold fund at Franklin. That was you know that was actually originally introduced in like the 50s. I think Marty Whiskerman was the original Franklin partner who brought that fund out. Um and while I definitely had a dialogue with the manager of that fund, uh it was never part of under my purview. I ran the natural resource fund there. Um, you know, that said, I came into the business when gold stocks were valued at, you know, typically at least two times, if not higher times NAV, you know, where people were willing to pay a significant premium to, you know, on to the market multiples on cash flow or earnings because they felt that gold stocks served a purpose. They protected you from what might be an adverse or inflationary outcome that look in the early 90s the 70s were still a pretty vivid memory for a lot of the portfolio managers. Now that portfolio manager generation has now more or less I I won't say they've died off but they've gone into retirement. You know they're living on their boats. They're they're hanging out elsewhere. Um and over gradually over that period of time between us getting the world getting very comfortable that we're in a low inflationary environment perpetually um and uh the leaning in on the sort of move towards decarbonization and ESG that embedded premium that gold stocks used to trade with gradually whittleled away over an extended period of time to the point where there was a point earlier this year where the gold stocks had been cheaper on relative multiples, earnings, cash flow, even though they were generating fabulous returns on equity and returns on capital. They were at the deepest discount to the broader market that we had ever seen. They were the cheapest stocks on my board with the exception of, you know, like a few coal companies and some really out of favor um you know, out of favor energy stocks. So, so I think what that that's why people got so frustrated with gold stocks over the last decade plus after they peaked in 2011 um is that it just was like relentless. You could not win. The gold price actually did okay, but this the stocks were demultipled or or depremium into oblivion. And so what's changed over the last gosh, let's call it six months is that suddenly the businesses became so good that people had figured out that they needed to pay a little bit more for them. >> Where do you think that kind of goes to? Do do you think we get back to the the two or three times cash flow days? >> Uh you mean two to three times NAV? >> Yeah. Yes. Yes. Absolutely. >> I you know I don't know. I don't know if we ever get back. I mean, it'd be really fun if we did, you know, because despite the fact that most of these stocks are up a lot, so are the NAVs, right? Um, and so they're still trading relatively cheap. I'm of a mind that if you have a real investment theme that the broader market is going to embrace, you should get expanding multiples on that. And that's what we've seen in areas like, you know, AI power generation where you look at a GE Vernova that's gone from, you know, it was spun out at 20 times earnings. is now trading at 50 times earnings because they sell the turbines that people need to build new natural gas fired plants to be able to actually build these new data centers. You know, if you look at places like the European defense stocks there, you've seen massive multiple expansion too as the reigns have been taken off of the Europeans uh in terms of their ability to budget spend or deficit spend to be able to expand to take care of their own borders. And so, you know, Leonardo has gone from five times earnings to 25 times earnings. The gold stocks are all up on as a group, you know, 100 to 150% this year, but the valuations have not expanded. Uh, and so that's an interesting thing that, you know, has me typically I'd be pretty scared with these stocks having run as hard as they are. The fact that the multiples have not expanded makes me more comfortable than I would normally be. >> I actually looked at all of the the gold gold mine evaluations. I think it was yesterday. And um so there's there's only two miners with trading at at two time about two times NAV. London Gold and uh Agneo Eagle. I was surprised to see London Gold there. But um but but like you what you're trading relative to NAV depends so much on what your assumption of gold price is. And of course um >> exactly >> these gold stocks look phenomenally cheap if you assume that today's gold price is >> the new gold price into per perpetuity. But every everyone's valuing these on a on a on a reversion to main call price assumption. >> Yeah, if you mark them if you mark the NAV to market, they're all super cheap. I I I will walk you through I won't name the name of the company, but um I will say so this has been a portfolio holding for us for a couple of years. Uh and they're in the process of building, you know, what we think is going to be a pretty good gold mine. And so when we met with them at the Colorado Springs uh World Gold forum meeting in September of 2024, you know, the market cap of the company was about $600 million bucks and it looked like they would generate about $300 million of basically free cash in the first year of production, which it is going to be 2027. Uh and so effectively trading two times cash flow. So I'm like great, okay, that looks good. Comfortable as a portfolio holding. we go back this year. So this no this uh September. So one year later the stock is up 250%. So the market cap is now 1 point or actually a little bit more. So it's $1.8 billion as the market cap, but the first year cash flow in 2027 is $900 million instead of $300 million. So it's still trading at two times cash flow. Um, and actually between then and now, you've taken out a lot of the execution risk. A lot of the big parts of the plant have been ordered. A lot of the pre-strip has been done. A lot of the potential, you know, pitfalls that you get with any sort of ancillary permitting or anything like that have been worked through. So, it's actually it's cheaper now than it up 250% plus, but it's cheaper than it was a year ago. Uh, and it has been measurably derisked. So that's the kind of thing where I have a hard time saying I've got to sell this stock because it's up. >> How much a part of the the narrative from totally out of fashion to, you know, the the the hottest things in sliced bread in the in in the scheme of this transition, do you think the retail investors coming in and and the flow starting to come in? We've started to see it happen, but we're nowhere near a sort of euphoric type place with regard to retail investors in the gold space. Yeah. Um so that was the big the puzzling factor earlier this year is that and then really over the course of the last several years is that you had this massive visible overt buying of physical gold by global central banks particularly eastern global central banks. Um and the reason that gold prices weren't going up faster is that the west was selling it to them. You know right we were we were liquidating our ETFs. we were, you know, still had some western central banks deciding to be marginal sellers. Uh, and so the that kind of helped keep keep a lid on it. That's the narrative that changed this year for physical gold, which is all of a sudden the central banks are still buying, but uh, and they have now company. It's more than just the, you know, Turkeys and Russia's and China's. You've added in things like Poland and and others that have been pretty aggressive and and and a lot of other central banks. So that's been part of it, but you've actually seen the, you know, you've seen, as you say, the retail investors have started to join. So it went from having relatively balanced buyers and sellers to now everyone kind of on the margin is buying and there are very few people who at this point are willing to sell their gold except today we note that I think the gold price was down about 90 bucks US uh in today's trading. So uh you know maybe maybe the correction that people have been waiting for for a while has has arrived. Um, but I think that's that's part of the narrative. The interesting thing to me is that gold stocks still, you know, the major gold stock ETFs in the US have still had net liquidations yearto date. Um, so that doesn't happen very often. I went back and looked at gosh, I think 15 years worth of top performing ETFs and how often they had outflows and it's about 3% of the time. Um, and so it's a pretty unique beast to have the top performing ETFs uh having net outflows over the course of the year. The last I checked, the GDX in the US has still had net outflows of close to $3 billion this year. It's reversed a little bit in the last few weeks. So we've gotten six 700 million worth of inflows. But, you know, to have a a a vehicle that has performed that well and to have had net public liquidation of it is really kind of telling you something that I think it's not early early, but it's not late by any stretch of the imagination. >> When when do things look like they're late? >> You know, that's that's when you're starting to see I I'm looking for two different things. One of which is where you're starting to see, you know, new share issuance by the GDX and the GDXJ start to go up marketly. So you don't just see it going up because of performance. You see the NAVs U or not the NAVs but the AUM going up dramatically because you're getting you know billions and billions of dollars of inflows. Not seeing that yet. Uh you know when you start to see we've seen a lot of smaller companies do equity issuances. when you start to see the big guys do equity issuances because they're starting to buy other things and they don't really want to you know issue their uh you know do a lot of debt or um things like that then then you're starting to get a little bit later in the game for sure um you know as in terms of yard sticks for me I still look at you know where is the gold price and the US held gold relative and how much does that cover of our foreign held treasuries. Um, and so right now the historical range on that has been anywhere from like 40% to 5%. Uh, of basically us having enough gold to cover the entirety of the treasuries that we have issued to foreign entities. Um, and so right now that metric is, you know, call it the the domestic stockpile of US gold is just over a trillion dollars. Um, we've got close to $10 trillion worth of Treasury securities issued to foreigners. So, it's a little I think it's about 11% right now. So, you know, that would tell you that we're still relatively early in this process. But what I know for sure is we're never, and this is what I tell investors with us, we're never going to get the really easy, steady, up into the right kind of bull markets that technology investors or healthcare investors get for these long extended periods of time. We have signed up for a totally different rodeo in that we're going to have these sharp, brutal corrections that are going to shake your confidence to the very core. It's just what this sector does. It what's it's what makes it so hard to invest in. Um and that's above and beyond the fact that environments where resource stocks are doing really well are inherently really volatile periods because inflation is rising, inflation uh concerns are rising. That creates stress between equity and bond markets. And so it's, you know, it's almost like we are self-defeating because the goodness that comes with this broadening inflationary outlet comes with this massive volatility that you suddenly have to manage through. >> That's what also makes the uh the resource sector so so fascinating to to follow that that dynamic of of global in nature and and very volatile. I I I'm curious to hear where you're seeing just maybe rounding out on gold there the most value because you have a global mandate and I think you said a few months back that overall you were um relatively light on in in North America. I think you said 25% of the portfolio was was US Canada. I'm not sure how much that's changed but where where are the pockets of value when it comes to gold? >> Yeah. So gold I think in some ways you have to look at almost a little bit of ancilliary plays. So, we came into this year very heavily positioned in precious metals and we're still pretty heavy, but we've been trimming a little bit off the top. You know, where we're still comfortable is, you know, at the valuations haven't expanded dramatically on uh sort of the resource asset managers. So, you know, one of our largest positions is a company that has both uh commodity commodity equity ETFs in gold, silver, platinum, uranium, etc. So, yeah. >> Yeah. So, that's an area where look, your your downside risk is a little bit truncated because they're not going to get taken out by a single coup in one country or a tailings dam fall or a permit that doesn't go through. Um, you know, if the sector does well, they're going to do well. and it's typically something that will carry past the end of the cycle. So that's an area of exposure to us. I think there's still reasonably good value in some of these developers. So companies that are, you know, maybe 12 to 18 months out from getting production online because there's still you have to do your due diligence on execution risk, but those are places where it's you can find I think some reasonable value. Um I also think that some of the things around uh you know the blocking and tackling you know I came away from shoot I met with like 40 companies over the course of uh you know myself and my colleagues u met with about 40 companies in 10 days between Beaver Creek and Colorado Springs. Um, and what we walked away with is let's find ways to buy companies that benefit from people actually having to drill a lot more projects. So, you know, drilling rig contractors and things like that because, you know, when you've got juniors raising a lot of money and having to keep up some news flow for their new investors to make sure that not only can they make the happy, make them happy, the people who bought the last deal, but make sure you can get them excited to buy the next deal, you know, you got to run the truth machine and which is the drilling rig. So, I think services around that are kind of an interesting way to position yourselves in in in the market now that we're moving into a sweet spot where enthusiasm is translating to having to put capital in the ground. >> Yeah. Yeah. Yeah. The the picks and shovels play always interesting. >> Picks and shovels approach. Picks and shovels in the resources space. Is that like Sanvic ground support? >> It is. We're talking about businesses like Sanvic ground support, mate. because well there's always a booming demand for the world's best ground support which we we know is there's infinite demand for that kind of product but when times are when times are absolutely huming in the resources space infinite becomes even more infinite. Do do you know why I'm I'm so attracted to to the old DSI to the Sanvic ground support business as well? Because they are the premier name in the sector, mate. The quality rises to the top and these guys have mastered it in Australia. What do you what do you think Rob would think of someone who's a self-described uh quantitative guy? What do you think he would think of my my statement that something infinite can become even more infinite? Do do you think he'd approve, can I get a job at marathon after this? Doesn't matter because Sanvic ground support. They might give me a job because it's the best ground support. Maybe they need someone to sell ground. >> It'd be a privilege to work under Derek Herd. Go Derek. Go the Sanvic ground support team. And if you're a minor out there, get your order in today. >> Get some ground support and improve my math. But um yeah, the cyclical nature of of of them is like fascinating as well. I do think of this like phenomenon when it comes to like um yeah cyclical businesses where at the at the peaks of cycles often the multiples look the cheapest and it's at the troughs where multiples look the most expensive just by by virtue of the the relative valuation and um the compression of earnings around there. But I was struck speaking of like you know energy stocks when um when you've actually got what is what feels like a relative trough and yet multiples are tremendously low. This is strange right? >> Totally. Um and I would say you know what I try and do with the strategy that we manage which is you know try and have a kind of core book of these high cash generating significant capital returning kind of companies is in the best of all worlds what you do is utilize downturns to acquire positive carry convexity. Uh, and what I mean by those two terms, the positive carry comes from the dividend yield that comes in with it. So you get, you know, five, seven, 10, 12% dividend yields. And that's your positive carry. That's what you're paid to wait. The convexity comes from low expectations on future earnings or future commodity prices and very compressed multiples. Um, so when you're paid well to be patient, it's almost like you're buying a long duration option that pays you to own it. Um, and so that that to me, having been through a few or more than a few of these cycles in resources, that's the way you work your way through the choppy times is making sure you've got a real core positioning in that kind of stuff. some of these these energy names to to tease out what you're saying there like 10 plus% dividends and they're you know they're they're the unloved types of ones. They're the ones listed in in perhaps London or or or Norway or or or these types of things. But when when you when you put it all kind of together, how do you see that playing out from where we are today? How do you see the cycle playing out? So what I will say is that the way we are express the cheapest way that we're finding to express a positive uh energy bet is just as you said uh a lot of the North Sea listed ENTP companies. So whether that's Norway or the UK, um it is I think you know in my career it's unusual for me to be able to find these types of quality companies uh at multiples like this and we understand why that is right is that what over the last what's happened in the last decade in Europe has been the most um god tear off your nose to spite your face regulator regy and tax regime in the history of mankind. I think it's it's possibly the biggest own goal in the history of global capitalism in that they shut down a bunch of perfectly functioning nuclear plants as well as significantly uh you know discouraged domestic production of hydrocarbons and left themselves wholly vulnerable to some combination of Russian pipeline gas and global LNG. And so, you know, effectively what's that's happened is, you know, German industrial production didn't fall for 40 years. It's fallen for five straight years now. Um, and it didn't recover at all after CO and kept, in fact, it's kept going down because there's no stability or no confidence in energy policy. So, you know, with with high taxes and high regulation, they've done everything they can to discourage local production. Question is, is that changing? And what you when you see who's starting to lead in the polls, if you're in France or if you're in the UK or if you're in um you know in Germany, you've got moderate to slightly right leaning governments who I think have the potential to have a significantly more pragmatic energy policy. Um, and if that's the if that's the case, if you can look at this like a rational human being, which may be a stretch for European politicians, but if you can if you can be rational for just a moment and say, okay, uh, it's a cheaper domestic to produce it domestically, it helps domestic employment, it helps domestic tax receipts, and oh, by the way, even if you're producing natural gas, in the North Sea and delivering it, you know, onshore via pipeline. It is wildly less uh carbon intensive, so much greener than shipping it in from Trinidad and Tobago, right? So, you know, it's it's the case for it is overwhelming. That said, it's not a sure bet, but that's why the stocks are trading at two times cash flow. So my thought on these is you've got really good companies um in terms of people companies who have taken advantage of a cycle where all of the BPs and shells and totals have been encouraged to sell their boring stuff to invest money in renewables which is crappy returns but they've sold all these boring assets that are on the very very cheap and these five or six companies in the North Sea have gobbled all these up at super bargain bargain prices and they're just sitting there waiting for things potentially to get just a little bit better. And so, you know, I don't think these are going to be five to six times cash flow businesses, but if they're currently trading at one and a half times or two times cash flow and they go to three times cash flow and they're paying you double digit dividends annually along the way, that feels like a pretty good ride to me. And so that's that's the core of our energy exposure uh right now is in kind of three different companies who operate in that realm. >> And and how about if you contrast that with the the energy companies in in the states because you've spoken about the the sharp drop off in in shale perhaps perhaps you've got a view that that's even sharper than other people might anticipate. But what what do you sort of make of the the multiples and the valuations that uh the companies, you know, similar type companies trade at in the states? >> You know, it takes someone who's actually taken the time to understand what a decline curve looks like. And so, uh, and what that speaks to is longer term capital intensivity. You know, if you have a company that's predominantly shale oriented, you're going to be losing, you know, 35ish if it's a relatively mature base. It's something that's growing, it's more like 50% a year in annual decline rate. So, you are struggling to produce if you're producing 100,000 barrels a day, you know, you got to find, you know, 40 to 50,000 barrels a day of new barrels the next year to make sure you just stay flat. when you're talking about these North Sea assets where you've got mature fields where you're not talking about the same kind of massive upfront frack and rapid decline curves, you know, if you're a 100,000 barrel a day producer, you only have to find 20,000 barrels a day, 25,000 barrels a day, maybe 15,000 barrels a day. And therefore, all of the cash flow that you're generating off of that 100,000 barrels a day, you you're free to do other stuff with. You're free to buy back stock. You're free to pay down debt. You're free to pay dividends. You're free to make accretive acquisitions with cash, which means they are truly accretive. So that's the opportunity set that I see. And so that's uniquely to I think that's more North Sea and elsewhere most of the sort of headline names uh in the Perian, you know, are of the first variety which is rapid decline curves. um where you don't have a lot of visibility of what that production curve is going to look like in three to five years. All you know is you're going to have to spend a ton of money between now and then just to stay flat. And so I I don't find a lot of value in USbased producers. I've got a few and there's some good royalty companies uh in the US and Canada that I think are are worthwhile vehicles. But that said, you know, I just I'll take the I'll take the European stuff just on a multiple uh reserve life uh positive potential catalyst that's outside of just oil prices and gas prices going up. Um you know, that to me is a is a much easier bet and I'm being paid a lot better to take that bet as well. un under underpinning maybe maybe some of the um yeah potential upside as well is like have you had a look at the chart it's just the gold price to to oil price ratios and just like how how how extreme things are on on the high end from just a historical like basis over the last >> uh yeah like 50 60 70 years it's kind of remarkable with the exception of co >> yeah it is um I think I understand it and I've had people talking to me this talking to me about this for a year or a year and a half and like does that make you want to go short gold and long oil my answer is no because there's there there's fundamental drivers behind it you know look I you know I was a presenter at the LBMA forum last November so just under a year ago in Miami and I had a chance to sit down you know with some fellow presenters a couple of whom were central banks and you know I said look just between you know us two guys, you know, if we see a riskoff situation where, you know, treasuries are well bid and gold goes down in theory, what do you think the global central bank community does? Uh, and they said they would take that as an opportunity to sell more treasuries and to buy more gold. So, I think we're in a regime that's very different from what defined the 2020s or sorry, the 2000s to 2020. That 20-year period was totally unique. Very low inflation, very low inflation expectations, and that's what gave bonds and stocks their anti-correlated um you know, feature. Um we're out of that realm right now. So that's what, you know, if inflation's above 2 and a half or 3%, bonds and stocks aren't inversely correlated. In fact, they're more likely to be positively correlated. So you need something else in there that acts differently. And gold is serving that purpose, you know. But flip that to oil. I actually I I think the sentiment in oil is awful, which just makes me kind of attracted to it. I mean, I like I like I'm I'm a you know, I'm a I'm a I'm a metaphysical dumper dumpster diver by, you know, by training. So, that to me is where there's really interesting opportunity. Now, if you look over a much longer time frame, look at 120 years worth of history. There's a there's a great uh guy uh Rob Connor who writes the crude chronic chronicles. if you're not a subscriber to that Substack or following on on X, it's worth doing. Um, but the lesson of the last 120 years, if you look at whether it's gold, base metals, uh, energy, uh, agricultural commodities, they tend to travel together over time. And so from that perspective, I think gold is telling us something very interesting right now about where the rest of the commodity complex can go over the next three, five, 10 years. And I think if you if you listen closely, it's telling you higher. So you just need to think about that and maybe be a little bit patient. But this is the time to pick up that really inexpensive convexity in the energy patch. So to to tease that out even even further, you you've spoken and I think you wrote in your quarterly Rob about embracing volatility which is a a fascinating concept and it um yeah for some of the listeners that might come from a more mining oriented background it's a concept that might need a bit of breaking down but essentially we're in a world where where the pod shops and all these other you know PE private credit are trying to eradicate volatility from their portfolios or make it sort of seemingly So from from the outside and again you you seem to be pretty attracted to to doing the opposite. So I'd love to just hear your thoughts on how you embrace volatility. >> Yeah. So understanding that we're in a volatile sector, you know, it's the reason why we feel so strongly about being long short and hopefully being able to offset some of your sector specific risk that way. But there are some risks that are just a little hard to offset and those are broader systematic risks. And so those are areas where you know I went on a on a I guess you could call it a volatility journey back in the late you know for kind of 201617 to 2019 really understanding how bringing in certain instruments what I think the common terms would be e either long volatility or tail hedge type of characteristics into a portfolio that you know and resources that's inherently volatile itself often for very unusual ual or or usual reasons that having that long volatility bias gives you the ability to do some things that I think are very important. Um this sector in particular makes you feel like you need to sell things at the bottom because it hurts so badly, right? Um, and it also makes you feel like you have to buy a ton more at the top because man, it feels really good. There are ways that you can structure it from a security specific standpoint to be able uh to say look I'm going to spend you know 50 basis points 100 basis points 150 basis points of the fund over a course of 3 to 6 months and just say you know what there are some ways if I look across what I consider the kind of volatility um surface of various instruments where can I where can I exercise this cheap convexity in a way that it might get have make me able to get exposure in some instruments that give me the ability to not only hold on to all of my stocks if the market drops significantly um but gives me actual dry powder to buy more because that is you know from you know this is I don't even know how you would count the cycles that I have been through since I started managing resource money in kind of 1995 five. But the single biggest differentiator in long-term performance is being able to hold on to the bottom, being able to hold on at the bottom. Um, when everybody else is, you know, basically kind of dry heaving their their portfolios and in the best possible scenario, you have the ability to buy there. And that's what being long volatility enables you to do if you do it right. And look, I haven't gotten it right every time, but we get it right more often than we get it wrong. Um and but the ability to really compound returns with that sort of opportunistic, you know, buying and then harvesting uh capital from volatility is just it's it's it's it's a gamecher in terms of keeping you in the game when you need to be in the game and uh and enabling you to to to buy more. When you know, in my case, the 10 or 15% dividend yields go to 20 or 25. That's when you really want to be kind of backing up the truck. with with 80% returns year to date and 33.2% returns annualized since 2020. I think you're doing I think you're doing it right more often than not. >> I can I can neither confirm or deny those two. >> How do how do you think about the the kind of unpopularity of of what you kind of do? I mean, I know we started the conversation there, but even here in Australia, which is a resource kind of focused economy. We've seen a decline in the number of fund managers focusing on the space. I I I don't have as great an insight to what that's like in in the states, but are these sort of conferences kind of poorly attended to or are things perhaps changing in recent years with generalists starting to come and and look at the space? We're starting to see the very early stages of that in gold. I asked the, you know, the sponsors of the last two events, you know, both Beaver Creek and um Colorado Springs marginally more a little more people, but not what you would expect with the groups having done well. And energy conferences are have now been very lightly attended. You know, one of the things that I typically do is, you know, as you say, fewer number of fund managers than there used to be. Um, and I've worked with or shared meetings with the vast majority of them. You know, I spent some time underneath Toqueville Asset Management. So, I got to know uh, you know, uh, John Hathaway who's, you know, one of the great grand deans and one of the real true gentlemen in this business. Um, and you talk to someone like that or some of the guys who have run, you know, really good mutual funds in the sector for 10 or 15 years or some of my former colleagues who have run some of the closed end funds. No one's getting inflows, you know, and that's this is for gold managers. Um, resource managers as a whole are getting outflows. So, it's like it's it's kind of like we've been deplatformed. And so for us in the US where all the capital is gravitated to is the pod shops you know is to the millenniums and balasnes and 72s and those sorts of platforms where you know they provide an infrastructure for people to run a very specific kind of resource portfolios where they need to be very big liquid stocks. uh they need to be very balanced books and they're trying to ek out, you know, mids singledigit returns that they can then lever up five, six, seven times uh and generate a return stream that way. That's a very different beast. And I think that goes back to what you're talking about in terms of embracing volatility. Those managers, even though they run hu they run huge amounts of money um on a levered basis, but they can't own these little eclectic, you know, and by little I mean, you know, a billion, two billion, three billion dollar market cap companies. If they don't trade at least 15 or 20 million bucks a day, they're not going to own them. So those are outside the realm of the majority of resour allocated resource investment dollars going on today. Um I also think a lot of the generalists have just disbanded whatever sort of segments of their resource teams that they had. I mean, when I was coming up in this business in the, you know, mid to late 90s or the early 2000s, you know, you would the Black Rocks and the Fidelities and stuff, they'd have fleets of analysts coming to, you know, every one of the conferences, you just don't see them anymore. And even the good sort of single strategy hedge funds you know now 90% of their teams are effectively you know tech AI you know maybe some healthcare maybe some financials but given the shrinkage in resources as a percent of total market cap and the relative diminishment of liquidity there uh you know they're just they're not there. The good news is that if we come through a period where the group is starts to get back in favor again and the market caps grow and you get new issuance and all of a sudden you know all of a sudden they're going to be interested but it probably is at levels 50 to 100% higher than where we are today. >> Where do you think the world kind of goes with as you mentioned the the millenniums the 72s the the citadels of of the world? I mean, these strategies have grown enormously and they're kind of swallowing the the market in a way, but you you had a great quote at one point where, you know, you sort of said some not that these funds can't work in in the long term, but the strategy of eradicating volatility as you sort of said, you know, they they haven't faced that massive GFC type moment or anything in a in a substantial way. And like the the ones that did they were much smaller back then and they almost got wiped out. Some of them did kind of get wiped out. So how do you think about the the size of those funds in the market in 10 years time in 15 years time? >> Yeah, that's a super tough call because look the return streams that they have generated for their investors even though they charge enormous fees between A and B the return streams to investors have been great. assuming the investors want that sort of tea bill on steroids. You know, give me my one one and a half% a month and with very limited draw downs and they're perfectly happy. Um, you can do that as a, you know, couple hundred billion dollar industry. I don't it's hard to do it's hard to see the multi-managers as like a 500 billion or a trillion dollar industry. Then if you're talking the leverage on top of it, it's like you just I don't think the math works in terms of the underlying liquidity in the markets where they're really generating most of their returns. So I don't think they can grow as much as they have. It doesn't mean that they're they're doomed or that they won't continue to generate, you know, very attractive returns for a certain kind of investor set. Um, but you bring up a good question, which is, uh, you know, it's the taller the the taller the pyramid get or the taller the, you know, sort of the tree gets, the bigger the noise it makes when you knock it over, right? And the more damage it causes. And so I think we're in a spot where if you see some of the wonky stuff going on in private credit, which to me has kind of been the duct tape and bailing wire that's held together private equity, venture capital, commercial real estate, and you know, even some other facets of the market. You know, you start to see that liquidity drain coming out at the same time that you see broader liquidity um start to dry up a little bit as well. and you know combine on that uh you know the the fact that passive flows I'm not sure how much that keeps going if you keep firing 250 you know US passive flows that are highly dependent on 401k contributions if you start to fire a bunch of you know 250 or $300,000 a year programmers you know firing one person like that is like firing five people who make $50,000 a year and the impact on 401k flows is not insignificant so there's some dynamics in place where we may get that kind of riskoff sort of environment. Um and you know I'm just happy that volatility has been on sale and that the VIX has come down considerably both in equity uh and in rates and also in um you know in broader uh you know kind of uh in currency ball um so that to me is a a healthy allocation for us. Um, and look, I don't wish ill on anybody. Uh, but, uh, there's there's a part of me from a purely selfish standpoint that would love to see a really inconvenient fourth quarter of 2025, you know, shock to the system that takes the market down another, you know, takes the market down 5, 10, 15%. Because the other part of this is that as much as I like to be a buyer of volatility when it's cheap, there are a number of entities out there that have been pretty rabid sellers of volatility into every decline. And when you're a seller of volatility, you're kind of picking up nickels in front of steamrollers and it's worked. Um, but that doesn't work forever. And if you know, there's a great old New Yorker cartoon. And there's a guy, you know, it looks like a guy in a tattered suit sitting on a street corner and he's holding up a sign with a little cup looking for people to, you know, donate to him. And he said, "I bought the dip and then there was another dip." So that's the kind of thing that if you're a volatility seller, and that's what they've been Pavlovianly trained to do, is sell into every selloff. They did it during COVID. They did it during the taper tantrum. They did it during, you know, Volmageddon back a couple years ago. you get that second leg down and all of a sudden someone who's selling, you know, 25 or 30 basis points of volatility in their portfolio and thinking, "Hey, this is a great way to pick up a little bit of yield and that triples or quadruples on them and they're trying to figure out how to tell their investment committee they lost 150 basis points in three days in a market where all the rest of their stuff is melting down." That's a very different argument. Um, and I think you could see the pucker factor come pretty rapidly if we get that dip, then a second dip. And so, um, you know, there's there's I think there's going to be value to long volatility here. Whether it happens this year or not, I have no idea. But um at some point over the next 12 to 18 months, I think a market as richly valued as it is right now and as I think fragile from an incremental flow standpoint and built on a you know layer after layer of kind of opaqueness in these private credit instruments where we just don't have a lot of visibility and we're seeing that now with a couple things that happened in the US with first brands and a few others where hey you know we said there was collateral here But actually, sorry, there's not. And so that that calls into question the entire underwriting standard of the whole industry. And I don't think the whole industry is a fraud. But I do think there had been some bad credits underwritten. And the question is how much more of those, you know, dead fish are going to float to the surface here over the next, you know, couple three months. you you've got great insight which I think might be a bit um you know uh minimized by some people here when you talk about like investment committees and how these bigger investing operations around the world uh manage themselves and the time it takes to to to kind of get things done when when you talk about that kind of bearish sense of the market I think a lot of us here are sitting pretty confident because resources have started to work for a little while now but I'm I'm really curious to hear from you Rob what what is the world in which you know things don't quite go well for all of us in in this end of the market like what's the the bare bare case perhaps in the in the medium term for for all the names we're looking at so I think what's driving the you know broader reach towards tangible assets is the realization that you know kind of excessively spending governments and government budget deficits and having to fund these things um is having a really adverse impact on the credit side of the global marketplace. And so, you know, what could potentially improve that? Okay, look, if AI is wildly successful in increasing productivity um to the point where companies get way more profitable and taxes increase and so you start to get something closer to, you know, kind of balanced budgets or deficits at least go down. um that drives an excitement that might not be great for 50 or 60% of the companies in the S&P 500, but it doesn't matter because all the market caps in the top, you know, 25 or 30 names anyway. So that in theory, you know, could drive a reversal of what we've seen this year, which is a little bit of a growth to value rotation, and that's what and a US to global rotation. And those two things typically happen at the same time. Um that feels really good to us. You know, could that reverse? Absolutely. You know, you know, given if if if you've got great news on budget deficits, if you've got a calming down of geopolitical tensions, if you all of a sudden have the US, China, and Russia sit down and say, "Kumbaya, we're, you know, we're all buddies again, and we don't have to worry about, you know, reestablishing supply chains all over the world. So those incremental costs are going to go away and the tariffs are going to go away and yeah, you know, that's I I think that's a that's a not it's not a zero probability. I it's a pretty low probability, but I don't think it's zero. That would be the environment where I think you could sell see a sell-off in everything that we do. flip side of that or not the flip side, the other thing that you have to kind of worry about is you know what if we have this massive structural riskoff kind of move in which case most of our stuff's going to go down too. Um I think in particular to gold I think it will go down less and it will recover the fastest. You know, we've done a lot of work. The last five major corrections of the US 6040 portfolio, you know, gold on average has had half the draw down and has recovered about 70% faster. You know, you could look at that very linear linearly around the tariff tantrum. You know, gold fell roughly, you know, I think onetenth as much as the broader market and had recovered its old high in two days after the bottom was met. And this is bull, not the equities. >> So that's bullion. Um and and so and and but the equities quite frankly weren't super far behind. They they kind of followed and they were back to highs um you know within you know probably less than a month. It took almost three months for the broader S&P to get back to flat. But if you look at that analysis across the last five major you know draw downs for the 6040 portfolio that's you know that consistently gold has you know we know the playbook is if markets are rough the central banks will print eventually and you know and when they do gold's going to be the primary beneficiary. It's sitting closest to the door. um when the you know when the when the when the appetizers start getting served out of the kitchen, you know, gold is the one right next to that door and they start gobbling it up first. We I mean we haven't even asked you yet. You you talk about the the the taper tantrum, the impact of tariffs and and what the Fed might do. Something the the US government has been doing is is writing checks to resource companies, MP materials, US antimony corp and these sorts of things. How are you kind of digesting that and what are you making of some of the valuations? I mean, some of the stuff we kind of see here for for Mountain Pass, Neurology plays and the like are absolutely astounding. They're just gobsmacking for companies that have nothing but moose pasture. So, how do you digest all of that? >> So, the lesson from all of this is anything that sits in this kind of realm, you just can't be short. And so I this is speaking as someone I was short MP materials into the because look the the business is their their you know their processing business mag it's it's it's not a good business um and never has been and without government support it never would be. So uh it it tells you you can't be short. It tells you that if you're going to play in that realm at least try and find the quasi real businesses. The tough thing about this is and this is coming both from industry and from people that I know who are kind of close to you know various government agencies and the contacts that they have there is that it's not the best companies that are getting the deals uh right that are getting the support. um it tends to be a little bit more you know who's you know who's the the most politically connected who has been the most effective lobbyer of the current administration and so look I wish the money was being spent better u but that said it does mark a quantum shift in the way that resources are viewed as a strategic imperative for governments um and I think inherently that is a good thing um because if we continued to go down the path that we were going down um you know we didn't have the ability to have a functioning military for longer than five or 6 weeks if the Chinese decided to cut off the you know various you know whether it be Germanmanium or rare earths or all the sorts of things that they both produce and refine um you know we had backed ourselves unknowingly into a wildly indefensible and vulnerable corner and so now we're starting to get out of it and we realize we have to do so with some sense of urgency So, look, I get it. If I was in their seat, I'd be spraying the money hose a little bit differently. Um, but that doesn't change the fact that the money hose is in their hands. Uh, and so, you know, kind of put yourself in the way. We don't do a lot of that stuff because none of it is high free cash flowing and very little of it is in capital return mode. That said, you know, we're we've got a little basket of kind of critical metals and strategic metals where, you know, real underlying assets and businesses that yes, we're paying a lot more than we would normally like for. Um, but that is the nature of the game today is that, you know, the the we're not going to get these things at, you know, four times NAV anymore. >> I I can't I can't Yeah. let you go without without just sharing your thoughts on on uranium as well. Rob, I um I understand kazata problems your preferred way to to to be long uranium, but someone that's yeah like clearly follow super closely energy markets the uh the the EMP world like how do you think of the the uranium valuations and space right now? So the way I typically quantify this is I I rank my zealots on a scale of 1 to 10 in the resource spectrum in the resource spectrum. So uh so like so gold zealots I think kind of weigh in at about a six. >> Yeah. Yeah. Yeah. >> Um silver zealots are probably like an eight and a half or nine. Oh n >> and the uranium Yeah. And they're and the uranium guys are like a 12. They are off they're off. If you've ever seen Spinal Tap, it's like it goes to 11. So that's that that's that's the uranium bulls. And unfortunately, valuations have followed. So it's super hard for a guy who pays attention to NAVs and free cash flow yields and that sort of thing. So you know, I'm not I've got a couple of small positions in the space where I think we've got some assets that offer wildly higher convexity. So like you know a 1 or 2% position that if we're really right can act like a four or 5% position. Um but it's hard for me to own. Our exposure there is actually via the same you know the our biggest position in gold which is is spat. And when you've got an asset manager that's now a third of their book is uranium whether it's flute through the physical uranium trusts or um whether it's the actively managed uh spat ETFs or or the passively managed ones. you know, that's that's a 10 plus billion dollar asset manager. So, I think if that part of SPAT traded separately, I would love to see the multiple that the uranium, you know, Yahoos would put on it. So, I mean, I'm sure I'm sure it'd be trading for probably double what the entirety of Sprat trades at today. Um, so maybe maybe they'll get the notice and and and buy a little bit of that. So, I I love the theme. It makes all the sense in the world. If you really care about carbon emissions, you've got to care about uranium. I love I love me some yellow cake. Uh it's just hard for me to express from a from an equity standpoint and really feel like I'm giving my investors a margin of safety. >> Maybe just as a thought exercise, but do you see a similar type US government handout if you like to a uranium project or uranium company within the states like a mountain pass type deal? Well, if you look at a lot of the US uranium stocks, they seem to be already discounting something like that. U you know, some of them have got, you know, as as as they say out on the ranch in in West Texas, you know, they've already gotten their giddy up. Um and that's, you know, so I I think that would not be a surprise. Would all the stocks go up on it again? Yes, they I'm sure they would. Um but you know with stuff trading at you know now kind of you know two and a half to four times NAV on current spot prices you really got to believe in kind of $150 US uranium um to make a lot of this stuff work and yeah we'll I I have no doubt that we'll get there um you know over the course of the next three to five years. I just I'm reluctant to pay for it today. >> Absolutely. Rob, I could um I could chat with you for for hours and just and just sort of listen and learn from from your perspectives and your experience and how you think about the markets. So, thanks a lot for coming and and joining us on the show today. >> Oh, god, this was a real treat. Um, look, I've been admirer of your work and you've had some some people on, you know, incredibly great people in your recent shows in particular that I've really learned a lot from. So to be now amongst the, you know, amongst the people who you've had a chance to to speak with, I'm uh I'm honored. And at whatever point you feel like you want to hear a little bit more from me, just let me know and I'd be happy to come back on. >> Very very intrigued to to eventually learn what stock you you're going to be pitching at uh the heart and mind conference uh in November in Sydney. >> November 14th in Sydney. >> We'll be watching. Awesome. Thanks, Rob. Here we go, mate. Rob Mullen, an abundance of knowledge. I am very stoked we finally got him to share his thoughts on money of mine and all that's made possible by our fantastic supporters at Sanvic Ground Support Focus the platform by Market Tech and IMAK conference coming up very soon. Get your tickets. >> We'll be there. >> Investors go free. Hudoo >> Hudoo. Now remember, I'm an idiot. JD is an idiot. If you thought any of this was anything other than entertainment, you're an idiot and you need to read our disclaimer.